Taxes need to be shifted from young to older property owners – think tank

George Thompson, Press Association Political Staff

Britain needs to shift taxes away from young workers towards older people and property, an influential think tank report has said.

The Institute for Public Policy Research (IPPR) argued the move is necessary to address the rising costs of an older population, with ageing set to account for almost 80% of the additional fiscal pressure facing the UK by 2075.

The paper, written by Oxford professor Ben Ansell, calls for a new “fiscal contract” and suggests extending national insurance (NI) to older earners, and replacing council tax and stamp duty with one proportional property tax.

It comes after Prime Minister Andy Burnham refused to rule out tax rises in the Budget, telling ITV News on Monday that he “won’t be unrealistic” about the state of the public finances.

Questions remain over how some Labour promises, including £5 billion in defence spending which was announced before he entered No 10 and his plans for major reforms to the social care system, will be paid for.

Prof Ansell’s paper for the IPPR – which is influential on Labour policy and some of whose recruits have become ministers – argues that these pressures make reform of Britain’s tax system increasingly unavoidable.

He said: “Britain cannot meet the fiscal challenges of the coming decades simply by asking people in work to pay more and relying on another round of stealth taxes.

“Ageing is going to become by far the biggest source of pressure on the public finances.

“Yet our tax system has increasingly shifted responsibility towards younger workers while protecting many of those who have benefited most from decades of rising property and asset wealth.

“Reform is politically difficult, but avoiding it has simply given Britain an ever more complicated tax system.

“We need a new fiscal contract: one that raises the revenue the country will need, shifts more of the burden from work towards wealth and property, and is honest with the public about who pays and why.”

The report said that all industrialised societies now face the “challenge of an ageing population”, with the percentage of over-65s in Britain having risen from 14% in 1974 to 18% by 2024.

By 2074, it is expected to be 27%.

“Assuming benefits remain the same, that would push the cost of the state pension from 5% of GDP to 7.7%,” it said.

“Adding in healthcare costs – rising with age – and social care, some estimates have the fiscal impact of ageing adding up to almost an extra 10% of GDP by 2075.”

While benefits for older Britons are expected to become costlier, the IPPR said they are among the most tax-advantaged groups, largely because they do not pay NI.

The report argues the “hardest hit” by recent decades of British fiscal policymaking have been those in work, “particularly younger people repaying student loans through the tax system” who also struggle to afford housing comparable to that of their parents and grandparents.

Prof Ansell makes several suggestions to make the tax system fairer, including:

– Extending the 2% NI surcharge, currently paid by employees under 65, to pensioners

– Replacing council tax and stamp duty with a proportional property tax set at a rate of around 0.65%

– Equalising capital gains tax with income tax rates, alongside an investment allowance to protect normal returns

He also argues more work needs to be done to prepare for an artificial intelligence-driven economy, which could see companies no longer need the levels of employment required previously, and how taxes should be levied on the industry.

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