People earning above £19.5k ‘should pay more tax after pandemic’, think-tank says

Anyone who earns more than £19,500 per year ‘should pay more tax’, according to a plan put forward to help fix the UK’s finances after the Covid-19 pandemic.

A think-tank has put forward a proposal for a £40billion tax hike plan that would help pay back the money used to alleviate the effects of the crisis – which so far has seen record peacetime borrowing.

According to the Resolution Foundation, the country needs a range of tax changes by the middle of the decade to avoid returning to austerity.

The Treasury borrowed £208billion in the first six months of the financial year, which is up £175billion from the same period in 2019, according to the latest official figures.

The think-tank put forward a proposed ‘health and social care levy’, which would see a 4% tax on all incomes over £12,500, offset by both a 3% cut to employee national insurance and getting rid of Class 2 National Insurance contributions for self-employed workers.

It claims the move would not penalise low paid workers and the self-employed – who have been badly affected by restrictions during the pandemic – and that it would raise £17billion annually, with a suggested £6billion going to social care.

The study says: “These offsets would leave employees earning £19,500 and below better off, as well as self-employed workers earning less than £17,000”.

It also suggests a ‘pandemic profit levy’, which would see a windfall tax on firms that have benefited financially from the coronavirus crisis, like supermarkets and private firms on government contracts.

Another suggestion was wealth tax rises of £9billion, with restrictions on capital gains and inheritance tax reliefs, and homes which are worth more than £2million paying an extra council tax supplement.

While Chancellor Rishi Sunak wants to start balancing the books and has warned of hard choices ahead, he also effectively ruled out widespread tax hikes next year – saying the government is committed to supporting the economy and people’s jobs.

James Smith, the Resolution Foundation research director, said: “The Government is rightly focused on fighting Covid-19, and will then need to turn to securing the recovery for several years to come. But the daunting task of repairing the public finances lies ahead, with tax rises of £40 billion likely to be required.

“As well as repairing the public finances, the Chancellor’s consolidation plan should help the country address many of the non-Covid challenges Britain faces – from tackling insecure work to properly funding our social care system, whose weaknesses have been tragically exposed during this crisis.

“To do this, the Chancellor should combine tried-and-tested revenue raisers with major reform of wealth taxation and a new Health and Social Care Levy. This would ensure that post-Covid tax rises reflect the very uneven nature of this crisis, but also play a part in building a better country after it.”

You can read the report in full here.