Ten Strategies for the New Chancellor to Raise Taxation
![Alternative Approaches to Taxation: Strategies for the New Chancellor](https://i0.wp.com/truepublica.org.uk/wp-content/uploads/2024/07/Screenshot-2024-07-30-at-14.35.27.png?fit=703%2C435&ssl=1)
By Graham Vanbergen: The new Chancellor faces a challenging yet crucial task in a political landscape where promises have been made not to increase income tax, national insurance or VAT. Finding alternative methods to increase government revenue without impacting these primary tax areas will take time and effort. However, without going down the usual ‘rinse the rich’ route as many will do, although some imposition for being hugely wealthy is only right – other innovative and less conventional approaches could be employed to achieve this goal. So, what could increase revenue through increased taxation for the treasury to help bolster the national budget while maintaining both public and political goodwill?
Luxury Goods and Services Taxes: Targeting high-end consumption is a viable strategy. Taxes on luxury items like expensive cars, yachts, private jets, jewellery, and high-end real estate can be increased. This approach affects a smaller, wealthier segment of the population, which is less likely to face financial hardship due to these taxes.
Financial Transactions Tax (FTT): An FTT, often referred to as a “Tobin tax,” applies to the trade of financial instruments such as stocks, bonds, and derivatives. A small levy on each transaction could generate significant revenue, given the daily trade volume. This tax is particularly attractive as it targets speculative trading, which can contribute to financial market volatility.
Digital Services Tax: With the digital economy booming, a tax on large tech companies for the revenues generated from digital services in the country can be substantial. This approach ensures that tech giants pay their fair share of taxes in the jurisdictions where they operate and profit, aligning with international efforts to modernise tax codes for the digital age.
Offshore Pension Funds: Ultra-wealthy individuals are being advised how to use a loophole in pension investments to shelter their wealth from Labour’s clampdown on large-scale tax dodging. In an article in The Guardian, the promoter of one scheme told an undercover reporter that the government would not legislate to close the schemes down as ministers have “bigger fish to fry”. He said a client had placed £30m into a pension scheme to protect it from inheritance taxes, implying almost £12m of taxes saved by the client’s children. Closing this loophole would not be hard to do.
Sin Taxes: Increasing taxes on goods that are considered harmful, such as tobacco, alcohol, and sugary beverages, serves two purposes: raising revenue and promoting public health. These taxes are often more acceptable to the public as they target behaviours associated with adverse health outcomes.
Tourism and Travel Taxes: Countries with significant tourism can impose taxes on travel and lodging. For instance, increasing airport departure taxes or introducing a tourist tax on accommodation can provide additional funds. These taxes are generally borne by visitors rather than residents, minimising the impact on domestic taxpayers.
Congestion and Pollution Charges: Implementing or increasing congestion charges in busy urban centres and pollution charges for vehicles can reduce traffic and environmental impact while raising funds. These charges can be used to fund public transport improvements, making cities more sustainable and liveable.
Plastic Tax: A levy on single-use plastics can reduce plastic waste and encourage the use of environmentally friendly alternatives. This tax can be structured to target manufacturers and large retailers, thus avoiding direct consumer impact.
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Inheritance and Wealth Taxes: A more progressive inheritance tax or a wealth tax targeting the assets of the ultra-wealthy can generate substantial revenue. While politically sensitive, these taxes address wealth inequality and can be designed with thresholds to ensure that only the wealthiest individuals are affected.
However, according to some, the rich are those with assets of more than £2 million. The problem with that is not just the way their homes and other assets are valued but also that many may not be cash-rich, and forcing the elderly to sell up or fall into debt is hardly a progressive way forward. After all, whilst they may have benefited from rising property prices over the decades – they may not have physically profited from it.
By diversifying the tax base and targeting areas less likely to face widespread opposition, the new Chancellor can effectively raise necessary funds without resorting to income tax, national insurance, or VAT increases. Each of these alternative approaches has its own set of advantages and challenges, and a balanced combination of these measures could provide a robust solution to meet fiscal needs while supporting broader policy goals such as environmental sustainability, public health, and economic equity.
Strategic implementation and clear communication will be vital in ensuring public understanding and acceptance of these new measures, paving the way for a fiscally responsible and socially equitable future.