We’re a year on since the UK went into lockdown for the first time. It’s been an extremely hard time for all of us, especially those that have lost loved ones.
This weekend the Guardian reported that some wealthy tax exiles have benefited from furlough. It’s galling to see wealthy business owners who are tax exiles use state bailouts when times are tough.
Their employees deserve the right to go on furlough. Workers shouldn’t be punished for the behaviour of their bosses.
But it’s not fair that some very wealthy individuals can move offshore to pay less tax, but still benefit from UK government spending.
This is just another example of how the financial impact of the pandemic hasn’t been even.
Wealthier people have on average saved money during lockdown.
Whereas poorer people have lost their jobs in greater numbers. They are also more likely to have gone into debt or dipped into their savings.
As we build back from this crisis we need a fairer tax system. Our Executive Director, Robert Palmer, has written what this should look like here. We need to start with profitable companies and really wealthy people paying more in tax. This would support the high quality public services we deserve. Fairer taxes would also help tackle inequality.
Along with our allies we will be campaigning to make this vision a reality. There’s all to play for.
The government released 30 consultations on tax reform on what it had dubbed as “tax day”. However, this has turned out to be a bit of a flop. The Treasury has announced some worthy tinkering around the edges. But the big issues in the tax system - how to tax wealth properly, what to do about property taxes and tackling the climate crisis - have been largely punted to another day.
At Tax Justice UK, we have set out an ambitious set of proposals for progressive tax reform as we build back from the pandemic. It’s likely that the government will announce further tax changes at the autumn budget. We will campaign to ensure that these are as progressive as possible.
The government has proposed some small changes to tackle professionals who enable tax avoidance. This is a big problem. Often the promoters of tax dodging schemes get away with no punishment for helping clients slash their tax bills. The Treasury is planning to require all promoters of tax schemes to get insurance and is consulting on giving HMRC extra powers, including the ability to freeze the assets of promoters to ensure any penalties can be paid.
However, this doesn’t go nearly far enough to tackle the problem. TaxWatch has recently highlighted how lightly tax fraud is treated compared to benefit fraud. Instead, what is needed is a big infusion of money into HMRC enforcement; prosecutions for tax dodgers and their professional enablers; and giving HMRC the data it needs to target those not paying their fair share.
Already heavily trailed, the government is planning to slash Air Passenger Duty on domestic flights. To compensate, it’s looking at increasing the levy on long haul flights.
In the face of the climate crisis, it seems foolish to be cutting the cost of flying. The government should have followed France’s approach, where the French government bailed out Air France on the condition that the airline scrapped short haul domestic flights that could be made by high speed train.
Disappointingly, the Treasury also effectively ruled out a Frequent Flier Levy. This was a proposal for a progressive way of taxing flying - with every extra flight a person takes being taxed at an increasingly higher level.
Tax Day was another opportunity for the government to begin the task of tackling the historic under-taxing of wealth in the UK. There are several opportunities to make the tax system fairer. As our research shows, the public wants to see a fairer tax system.
For example, the Fairer Share campaign, which we support, is calling for the government to replace the broken council tax and stamp duty with a proportional property tax. At the moment, poorer households pay much of their income in council tax than richer ones.
Or the Chancellor could close the loophole that leaves unearned wealth taxed less than income from work. Aligning capital gains tax rates with income tax would make economic sense. A recent poll found 61% support for this measure. The Office of Tax Simplification estimates it could raise up to £14bn a year.
We’ll have to wait till the autumn budget to see potential action on these areas.
Last weeks’ budget did little to move the dial on gender equality. Our friends at the Womens’ Budget Group (WBG) highlighted that the £14bn a year in planned public service cuts will hit women and the poorest hardest. At the same time, the so-called ‘super deduction’ to capital allowances will give business the ‘biggest tax cut in modern history’.
Importantly the Treasury failed to publish a comprehensive Equality Impact Assessment of the budget. This makes it impossible to judge whether they have met their obligation under the Public Sector Equality Duty to have ‘due regard’ to equality. This is particularly concerning given that Covid-19 has worsened the situation for many women in terms of health, employment and unpaid work, resulting in increased levels of poverty, debt and mental health deterioration.
We know that the financial impact of the Covid-19 pandemic has not been even. Wealthy people have increased their wealth by saving while poorer people are more likely to have borrowed money in order to get through this crisis. This potentially makes a bad situation worse.
Even before the pandemic wealth in the UK was deeply unevenly distributed. As our Executive Director, Robert Palmer, wrote on openDemocracy, this is a feminist issue, as women typically own fewer assets than men. Gendered wealth inequality has real world consequences, including shorter lives, poorer health and a more precarious existence. This problem is exacerbated by the tax system, which treats wealth much more generously than consumption or income from work. Addressing wealth inequality, and in particular ensuring that women have better access to resources, should be a government priority.
Our submission to the Commision for a Gender Equal Economy set out evidence illustrating how wealth inequalities disproportionately affect women. For example, once women have children, they are much more likely to have little, or nothing, in the way of savings. This means that ownership of wealth is fairly even between men and women until people reach their 30s, when men start to pull away. Overall women have only 40% of the UK’s stock of personal wealth.
There are particularly stark differences in wealth when it comes to the ownership of financial assets, which are often lightly taxed. For example, women are less likely to have private pension pots, and if they do, the size tends to be much smaller. By the time a woman is in her early 60s, her average pension pot is a fifth the size of that of a man her age. Women also receive significantly less income from property, interest, dividends and investments than men.
So what can politicians do about this?
The government could invest in the care-led recovery WBG and many others are calling for. Investing in care would create 2.7 times as many jobs as the same investment in construction. 50% more can be recouped by the Treasury in direct and indirect tax revenue from investment in care than in construction. And investment in care is greener than in construction, producing 30% less greenhouse gas emissions.
One thing the government is considering and might decide to do is to tax income from wealth at the same level as income from work. The current approach, where capital gains are taxed at a lower rate than income tax, is regressive. It also favours men, since they are much more likely to receive income from capital gains. Increasing the tax rates on capital gains to the same level as income tax could raise up to £14bn a year according to government estimates. Our own research found that 74% of people want the wealthy to pay more tax.
Other options include curbing the very generous tax reliefs on pension savings. Higher earners receive the bulk of pension tax relief, despite making up a small proportion of the working population. The Resolution Foundation suggests a flat rate of relief at 28%, which would be revenue neutral.
While neither of these were in the budget, we expect to hear more announcements from the government on tax on 23 March and a further budget is due to take place in the autumn.
We will be discussing gender justice and tax justice in more detail together with the Women’s Budget Group on Friday, 19 March. Please join us here for this free event.
The event is part of the global days of action to make taxes work for women by the Global Alliance for Tax Justice.
You can watch the event on gender and tax here.
A well trailed increase to corporation tax dominated the headlines in the wake of the budget.
However, businesses will benefit from a massive tax giveaway before any tax rises take effect.
The UK has long been a frontrunner in the corporation tax “race to the bottom”. At first glance the promised hike in the rate from 19% to 25% looks like a major win for tax justice. We’ve long argued that an ultra-low corporation tax rate does little to stimulate investment.
But the rise in 2023 comes just ahead of a planned 2024 general election. The pressure on the Chancellor to cave and drop the tax rise will be immense.
Big business was also given a whopping £25 billion tax giveaway in the shape of a “super-deduction” for investment. The Chancellor described it as the “biggest business tax cut in history”.
It wasn’t the only cut announced. For all the Prime Minister’s promises that there would be no return to austerity, the budget included £15 billion a year of cuts to public services.
Meanwhile “a tsunami of jobs” was the spin promised to Teeside as one of eight locations awarded freeport status. Freeports are low tax, low regulation zones meant to encourage investment. But as we have argued before, it’s hard to see how freeports will amount to more than glorified business parks with a smattering of low skilled, poorly paid jobs.
There was nothing on capital gains tax or other potentially progressive changes to the way we tax wealth. All eyes will now focus on the Treasury’s planned “Tax Day” due to take place on the 23 March, where it’s possible more may emerge.
It’s important to claim victory when it happens. The corporation tax rise ends a decade of ideology that the only way for business tax is down. But we still have a long way to go before we see true tax justice.
Sign up to our free weekly newsletter: