The government could raise over £7 billion a year for vital public services by closing unfair tax loopholes, according to new Tax Justice UK research.
The situation facing the Chancellor on the eve of his Autumn Statement is stark. The NHS is perpetually in crisis, school buildings are crumbling, and people are struggling with a severe cost-of-living crisis with another unaffordable winter looming. Public finance solutions are needed more urgently than ever, particularly with the growing demand for increased spending on public services.
Tax Justice UK analysis demonstrates that closing just five tax loopholes, which benefit wealthy individuals and multinational companies, could raise over £7 billion a year. To give a sense of the scale of this subsidy, this could pay for all nursing and teacher vacancies across the UK with change to spare*.
These revenue-generating recommendations are put forward ahead of the Chancellor’s Autumn statement to offer feasible, pragmatic solutions to mounting crises. The policies have widespread support from economists, academics and respected think-tanks - including the Institute for Fiscal Studies (IFS) and The Resolution Foundation. Considering there are multiple tax loopholes that would benefit from being closed, these five are just a snapshot of the options available to Jeremy Hunt.
These five recommendations show that there is money available to tackle the urgent issues facing ordinary people.
Instead of sinking into fatalism and apathy, the Chancellor should use his Autumn Statement to raise urgent revenues and tackle NHS waiting lists and declining living standards.
1. End fossil fuel subsidies for oil and gas companies to raise £4.4 billion a year
Despite oil companies’ record profits since the war in Ukraine, the UK taxpayer continues to fund a loophole for the industry that the IFS has characterised as a "huge tax subsidy”. This is because the ‘windfall tax’ (Energy Profits Levy) implemented by the government contains “indefensibly generous” investment allowances. This loophole enables oil companies to claw back roughly £45 for every £100 spent on new UK oil and gas projects. This costs the taxpayer approximately £2 billion a year**. Additionally, Oxfam estimates taxpayers subsidise oil and gas companies in the North Sea for activities such as exploration and decommissioning to the tune of £2.2 billion. The UK taxpayer should not be footing the bill for polluting, highly profitable fossil-fuel companies, nor their cleanups. These climate-wrecking incentives must be shut down by the Chancellor as a priority not just to boost Treasury coffers but to speed up the transition to a low-carbon economy.
2. End classic car exemption to raise £130 million a year
Vehicles constructed more than 40 years before the 1 January of any year are exempt from paying vehicle excise duty. This subsidy for classic cars is a bizarre tax break, which highlights the inequities that have crept into the UK’s unwieldy tax system. At a time when people can’t afford to make ends meet, taxpayers should not subsidise an arbitrary tax break for a polluting hobby that could pay for over 3500 new nurses’ salaries a year.
3. End video games tax relief to raise £197 million
Video Games Tax Relief (VGTR) cost a record £197 million in 2022. Despite being designed as a relief to help independent developers produce “culturally British” games, evidence shows it is large, often multinational firms that are benefitting. HMRC data shows that claims over £500,000 account for 88% of the total amount paid out. And one big company in particular seems to benefit from the lion's share: US-owned company Rockstar, who produce Grand Theft Auto, revealed it obtained almost £80 million in VGTR in 2021-2022 - 41% of all VGTR paid out in the UK.
4. Close capital gains tax loopholes to raise £1.1 billion a year
‘Business Asset Disposal Relief’ is a tax break that lowers capital gains tax from 20% to 10% on the first £1 million of gains, when a person sells their company. This loophole has come under repeated criticism, including from think-tanks The Resolution Foundation and the IFS. There is little evidence that this tax break affects entrepreneurial activity, and the prospect of slightly lower taxes at the end of a person’s involvement with a business is not well-targeted in a business’ lifecycle, according to The Resolution Foundation. Considering there is an extremely strong consensus amongst economists and think-tanks around bringing capital gains tax in line with income tax at 40% (this is also one of Tax Justice UK’s six wealth tax policies), it is indefensible that a loophole further enables a carve out to a mere 10%. There is no sound reason why a person earning their income from selling a profitable business should pay a far lower tax rate than a person paying tax on their wages.
5. Close inheritance tax loopholes to raise £1.7 billion a year
Inheritance tax has a multitude of loopholes that enable wealthy estates to engineer their finances to avoid paying their fair share. This is evidenced by the fact that estates worth over £10 million pay an effective average tax rate of just 10% despite a headline IHT rate of 40%.
The Chancellor should also reform ‘business’ and ‘agricultural property’ inheritance tax reliefs, which could raise £1.5 billion a year. Evidence shows a small minority of very wealthy estates use these loopholes to avoid paying their full rate of inheritance tax. While abuse of agricultural property relief is pushing up the price of agricultural land, pricing poorer farmers out of the market. The Resolution Foundation, IPPR and the IFS have all put forward alternative policy designs, most recently with the IFS’s suggestion to cap business relief at £500,000, which we have used to calculate our revenue figure.
The Chancellor should remedy the fact that pension wealth is exempt from Inheritance Tax, which could raise £200 million a year. This enables heirs to receive a ‘defined contribution pension’ tax-free if the deceased dies before they are 75. This creates a bizarre imbalance, with inherited pensions benefitting from more favourable tax treatment than when they are used to fund retirement. It also distorts behaviour, creating an incentive for wealthy individuals to avoid drawing down on their pension, if they have other resources available. Economists have also raised particular concerns since pensions already receive significant tax advantages.
These recommendations sit alongside Tax Justice UK’s more ambitious policies for long term tax reform, outlined in our six wealth tax policies to raise £50 billion.
To see full citations and calculations, please click here.
Sign up to our free weekly newsletter: