The government should hike taxes on pensioners to boost public finances, a new paper has said.
The paper, published by the Institute for Public Policy Research, has called for the Prime Minister to extend national insurance to older earners, including by applying the existing 2% NI surcharge on earners to pensioners.
It warns that an ageing population will account for almost 80% of the additional fiscal pressure facing the UK by 2075, dwarfing the longer-term pressures associated with higher defence spending, the net zero transition and lower migration.
According to the think tank, the proportion of the population aged over 65 is expected to rise from 18% in 2024 to 27% by 2075.
In response, the paper says Britain must introduce a new fiscal settlement that shifts taxes away from young people towards property, older people and wealth.
Ben Ansell, professor at the University of Oxford and author of the paper, 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.”
The paper argues successive governments have found fundamental tax reform “extraordinarily difficult”, with the introduction of frozen thresholds, stealth taxes and a collection of smaller levies creating a system that is increasingly “complex” and heavily skewed towards taxing work and younger earners while protecting accumulated wealth and older homeowners.
As an example, the paper says someone earning £45,000, £70,000 or £105,000 in retirement faces marginal tax rates of 20%, 40% and 60% respectively. However, a younger graduate repaying a student loan and paying employee national insurance can face marginal rates of 37%, 51% and 71% at the same incomes.
To rebalance the system, Ansell suggests replacing council tax and stamp duty with a proportional property tax set at a rate of 0.65%.
In addition, Ansell recommends equalising capital gains tax with income tax rates, alongside an investment allowance to protect normal returns.
Ansell added: “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 a burden from work towards wealth and property and is honest with the public about who pays and why.”
Main image: tax, recha-oktaviani-h2aDKwigQeA-unsplash
