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The Government could raise £7.5 billion a year for vital public services by closing unfair tax loopholes, according to new research by tax campaigners.
Tax Justice UK analysis published on the eve of Jeremy Hunt’s Autumn Statement finds that closing just five tax loopholes – which disproportionately benefit wealthy individuals and multinational companies – could raise £7.5 billion a year, a sum which could pay for all nursing and teacher vacancies across the UK “with change to spare” the group says.
Several of the policies have backing from other respected experts including the Institute for Fiscal Studies (IFS) and the Resolution Foundation.
The UK tax code is “littered with inefficiencies, inequities and special treatment” for favoured interest groups and the wealthiest, Tax Justice UK argues. The group is not-for-profit and politically non-aligned.
Much of the tax loopholes go untracked, with the UK’s tax watchdog HMRC recently admitting that it only knows the cost – and impact – of 365 of the UK’s 1,180 tax reliefs. Campaigners argue the system’s complexity makes it easier for the wealthy and well-advised to avoid paying their fair share.
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But well-organised lobbies are often formed to protect their “sweetheart deals”, making fair and transparent policy-making more difficult. Closing these inequities in the tax system would not only improve fairness but make our taxes and economy more efficient, TJN believes.
The five recommendations “show that there is money available to tackle the urgent issues facing ordinary people.”
A spokesperson for Tax Justice UK said: “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.”
TJN is also pushing for six separate tax policies on wealth to raise an extra £50 billion a year.
It comes as new Opinium polling for Tax Justice UK released ahead of the Autumn Statement shows three in five Brits think closing tax loopholes should be a priority – rising to nearly three in four of those that voted Conservative at the 2019 general election.
Meanwhile, only one in four think that cutting taxes, rather than spending on public services, should be a priority for the Chancellor. Jeremy Hunt is scheduled to announce cuts to National Insurance as well as some business taxes today (22 November).
Five Calls to ‘Close the Loopholes’
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, Tax Justice UK says.
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.
Oxfam has estimated that taxpayers subsidise oil and gas companies in the North Sea for activities such as exploration and decommissioning to the tune of £2.2 billion.
A spokesperson for Tax Justice UK said: “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 the “classic car exemption” to raise £130 million a year
Vehicles produced 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, according to TJN. “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 cover over 3500 new nurses’ salaries a year,” the group said in a statement.
3. End video games tax relief to raise £197 million
Despite being designed as a relief to help independent developers produce “culturally British” games, evidence suggests that Video Games Tax Relief (VGTR) benefits typically large, often multinational firms. The relief cost a record £197 million in 2022.
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. The 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.
TJN argues there is a “consensus” that capital gains tax should be brought in line with income tax at 40%, to stop benefitting unearned wealth over earned income.
“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,” Tax Justice UK says.
5. Close inheritance tax loopholes to raise £1.7 billion a year
While the Conservatives are highly unlikely to close inheritance tax loopholes, the levy has a multitude of exemptions that enable wealthy estates to engineer their finances to avoid “paying their fair share”, Tax Justice UK argues. Estates worth over £10 million pay an effective average tax rate of just 10% despite a headline IHT rate of 40%, according to analysis in 2019. This is because inheritances placed into family trusts or gifted more than seven years prior to death typically aren’t taxed – a rule that has allowed billionaires to pass on huge sums of wealth to their offspring without paying tax.
Ending business and ‘agricultural property’ inheritance tax reliefs could also save the Treasury £1.5 billion a year, Tax Justice UK argues. The reliefs are used by a tiny proportion of families, leading the IFS to suggest capping business relief at £500,000.
Pension wealth is also exempt from Inheritance Tax. Ending this could raise £200 million a year. Heirs can receive a defined contribution pension tax-free if the deceased dies before they are 75. Tax Justice UK argues that inherited pensions benefit from more favourable tax treatment than if it were used to fund retirement. Pensions already receive significant tax advantages.
Rachael Henry, Head of Advocacy and Policy at Tax Justice UK said: ‘Britain has many extremely wealthy individuals and companies that are not paying their fair share. Britain’s tax code is littered with unfair loopholes that benefit the super-rich, while the rest of us are struggling to pay the bills.
“The public don’t want to see tax cuts. They want investment in public services so they can see a GP or send their kids to school without fear of classrooms collapsing. The government can raise desperately needed cash for the NHS and schools by making those that can, pay their fair share of tax.
“If they choose to leave this cash on the table, it’s clear they have chosen the side of the wealthiest, rather than standing with the majority in Britain trying to get by.”
Opinium Research carried out an online survey of 2,056 UK adults aged 18+ from 15th to 17th November 2023. Results have been weighted to be politically and nationally representative.
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