The Green Party has pledged to raise taxes on the wealthy to fund improvements in the NHS, housing market and tackle the climate crisis.
In its election manifesto, the party outlined plans to raise Capital Gains Tax (CGT) and National Insurance and equalise dividend tax with income tax rates.
Party leaders Carla Denyer and Adrian Ramsay said: “Elected Greens will push for major changes to the tax system to simplify and align the rates of tax paid on income and investment gains, whatever their source, and to fairly tax excessive concentrations of wealth.”
The Greens want to introduce a new wealth tax of 1% on assets worth over £10 million and 2% of assets worth more than £1 billion.
The party will also seek to reform CGT to align the rates paid by taxpayers on income and taxable gains, a move it claims will affect just 2% of taxpayers. However, Laura Suter, director of personal finance at AJ Bell, said it’s likely that many investors and business owners would be affected by the decision.
Suter said: “The government’s own estimates show that if the highest CGT rate rose by 10%, it would actually cost the government £2 billion by 2026/27. That’s because big increases in tax tend to impact investor behaviour. Investors may hold onto assets for longer rather than realising gains, find different ways to shelter their gains from the taxman or own second homes through companies to avoid the tax altogether.”
The party has pledged to keep the current 8% rate for employee NI contributions and abolish the Upper Earnings Limit of £50,268 so that higher earners pay more NI.
According to AJ Bell, charging 8% on an entire salary over the Personal Allowance represents a “significant tax increase” for middle and higher earners. For example, someone earning £55,000 a year would pay an extra £284 a year, while someone on £100,000 a year would pay almost £3,000 a year more in taxes.
The Greens also have their eye on dividend tax, with plans to equalise the rates with income tax rates. There is currently a big gap between the two, with dividend tax having the lowest rate of 8.75% versus 20% for income tax. While this move would hit wealthy investors, it is also likely to have a large impact on self-employed people who pay themselves through dividends and pensioners who take income from investments.
Combined, the party estimates that these changes could raise additional revenue of between £50 and £70 billion per year.
Pension raid
Under their proposals, the Greens also plan to reform the pension system, with the introduction of a flat pension tax relief rate of 20%.
However, Tom Selby, director of public policy at AJ Bell, dubbed the move a “colossal pension tax raid” that would “fundamentally upend” the UK retirement system.
Selby said: “The proposal appears to have been put forward with little thought to the challenges it would create. Billions of pounds of higher and additional rate tax relief is paid to members of defined benefit schemes. If a flat rate of pension tax relief at 20% was introduced, these employees would presumably need to be clobbered with a tax charge of thousands of pounds in order to shift them to the proposed flat rate. This would inevitably lead to huge unrest, the potential for key staff exiting public sector roles and new waves of strike action.”
Selby said the idea also raises questions of fairness between generations, with Baby Boomers enjoying more generous pension provision than younger people through the wider availability of defined benefit pensions. He warned that if the Greens’ idea was implemented, younger workers would not have the opportunity to benefit from higher rate relief in the future.
“This proposal would therefore effectively be a twin attack on the public sector and younger pension savers,” Selby added.
The manifesto also includes plans to require UK pension funds to remove fossil fuel assets from their investment portfolios by 2030.
However, Matthew Downey, investment consultant at Broadstone warned that while prohibitions may appear an efficient way of reaching net zero, it could have unintended consequences.
Downey said: “If pension schemes are mandated to remove fossil fuel assets, we do worry that these may be bought up by hedge funds and other investors who may not be as interested in how the underlying companies operate. As an asset owner, the ability to engage and influence corporate behaviour is arguably an effective way to implement change.”
He added: “As the manifesto stands, the wording does not prohibit debt financing so there are potential loopholes which could be exploited. That said, supermarkets make money by selling fuel, banks may finance oil and gas firms, and there is even an airline in the FTSE 100, so depending on how the targets are set, they could have a significant impact on the UK stock market.”
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