An influential left wing think tank has urged the Labour government to tax wealth more effectively as speculation about the October Budget builds.
New analysis from the Institute for Public Policy Research (IPPR) showed that the UK’s tax regime is “driving regional inequalities” by taxing wealth and income at different levels.
According to their research, around 40 per cent of investment income in the UK is generated in London and the South East despite being home to a quarter of the population.
This means that by 2030, an average person in the North is expected to have £210,000 less wealth than the average person from the South East, partly due to the “skewed” tax regime.
“At the moment our tax system is driving regional inequalities,” George Dibb, associate director for economic policy at IPPR, said.
The think tank argued that equalising capital gains with income tax should be a “first step” while it also suggested the government should cap reliefs on business and agriculture transfers to minimise inheritance tax avoidance.
Alongside lifting capital gains, IPPR urged the government to reform property taxes, including by introducing two higher council tax bands and levying higher taxes on empty homes.
IPPR’s recommendations are likely to be taken seriously in Downing Street. Since the election, IPPR has quickly emerged as one of the most influential think tanks on the left.
The intake of new Labour MPs includes five former IPPR employees while two former staffers have joined Downing Street’s policy unit.
The research comes amid increasing speculation about potential tax rises in the October Budget.
In a speech on Tuesday, the Prime Minister warned that the Budget would be “painful“, suggesting that those with “the broadest shoulders should bear the heavier burden”.
On Wednesday, Chancellor Rachel Reeves refused to rule out raising inheritance tax or capital gains tax, telling reporters that she was “not going to write a Budget two months ahead of delivering it”.
The comments have sparked concerns that Labour is paving the way for tax hikes, with City figures warning that a slew of tax rises would conflict with the new government’s growth ambitions.
Robert Colvile, director of the Centre for Policy Studies (CPS), warned that increasing wealth taxes would “almost immediately” destroy any hope of Labour achieving their “primary goal” of generating growth.
Nimesh Shah, boss of Blick Rothenberg, said “it seems inevitable now that the tax cost for many investors and entrepreneurs is only going to go up,” .
“The likely CGT changes could encourage individuals to leave the UK and become non-UK tax resident – if this can be successfully achieved, they would fall outside the CGT net,” Shah said.