COVID-19: Those earning ‘above £19.5k’ should pay more tax to help fix finances

People earning more than £19,500 a year would pay more under a £40bn tax hike plan to boost the public finances in the wake of the COVID-19 crisis.

The Resolution Foundation makes the case for a range of tax changes by the middle of the decade to avoid a return to austerity and tackle the record peacetime borrowing demanded by the government’s response to coronavirus.

The latest official figures showed £208bn was borrowed by the Treasury in the first six months of the current financial year alone – £175bn up on the same period in 2019.

The think-tank recommended a ‘health and social care levy’ – a 4% tax on all incomes over £12,500 – which would be offset by a 3% cut to employee national insurance and the abolition of Class 2 National Insurance contributions for the self-employed.

It said the shift would not penalise those worst-hit by the virus crisis restrictions – the low-paid and self-employed – and provide a boost for a social care system whose inadequacies were exposed by COVID-19.

The study calculated the levy would raise £17bn annually. It was suggested £6bn of that sum should go to social care.

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

Other notable measures included a “pandemic profit levy” – a windfall tax – on firms that had benefited from the crisis during 2020, such as supermarkets and private contractors working on pandemic projects for the government.

A wider hit to businesses, by increasing corporation tax from 19% to 22%, would raise £10bn, the foundation said.

It also argued for wealth tax rises of £9bn, including restrictions on capital gains and inheritance tax reliefs, with homes worth more than £2m paying an additional council tax supplement.

The foundation outlined its case hours after a separate report, commissioned by the government, pushed for a shake-up of capital gains tax that would target second home-owners and tax avoidance.

The Office for Tax Simplification recommended changes that, it said, could raise up to £14bn annually if rates were brought into line with those for income tax.

Chancellor Rishi Sunak is keen to start balancing the books in the medium term, warning of hard choices ahead, but has effectively ruled out widespread hikes next year as the government has retained its commitment to supporting the economy and jobs.

Resolution Foundation research director James Smith said: 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.”

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