Rishi Sunak is being urged by a leading centre-right thinktank to limit the impact of April’s controversial £12bn increase in national insurance contributions by shifting the burden of tax from work to wealth.
Highlighting disquiet in Tory ranks over the looming national insurance rise, a report from Bright Blue has called for higher taxes on capital, inheritance and rents as a way of making the system fairer.
The thinktank, set up to promote liberal conservatism, also said people who worked on after they reach the state pension age should pay national insurance rather than being exempt.
The report said Sunak’s new health and social care levy – designed to raise money to clear NHS backlogs and increase spending on care – was “surprising” for a Conservative government to bring in and the priority should be to make it less burdensome for employers.
“It cannot be abolished but it can be made much fairer. Any detrimental impact on workers and employers can be mitigated,” the report added.
Sunak and Boris Johnson have insisted in a joint Sunday Times article that the national insurance increase will go ahead in April as planned.
But the Labour party, a significant number of Tory MPs and business groups have all expressed strong opposition to what they see as a tax on jobs. The Institute of Directors has warned the 1.25% increase – payable by both employers and employees – will drive up the UK’s already soaring inflation rate by adding to costs.
Bright Blue said the Treasury should not pass up the opportunity to recalibrate the tax system so that it better rewarded work and recognised the impact wealth and inheritance was having on life outcomes. Sunak could mitigate the impact of the NI increase and reform the tax system by a series of measures, including:
Broadening the health and social care levy to apply to pensioner and rental income.
Ending the exemption from paying national insurance contributions for those working on beyond the state pension age, currently 66.
Narrowing the gap between the headline rate of capital gains tax and Income tax by creating two main rates for all capital gains of 18% at the basic rate and 28% at the higher rate.
Replacing inheritance tax with a lifetime receipts tax, which would have a starting lifetime allowance of £125,700.
Ryan Shorthouse, Bright Blue’s chief executive and a co-author of the report, said: “A centre-right government that is committed to levelling up the UK should rebalance the tax system from income associated with work and effort and on to income associated with privilege and luck.”
The report was commissioned by Bright Blue’s cross-party tax commission, which includes the Labour MP Margaret Hodge, the former chair of the House of Commons public accounts committee, and the former Conservative universities minister David Willetts.
Hodge said: “The government’s new levy on national insurance contributions is one of the least equitable options for raising the necessary resources. While I would advocate for even more radical reform, these new recommendations will rightly open up debate on how we could fairly taxing income from wealth as well as work.”
Willetts said the government needed to get the right balance between different forms of taxation. “We may be taxing earnings too heavily relative to assets, whose value has surged.”