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A new £400bn tax on house price rises should be used to protect young people from the unfair impact of coronavirus, a leading think tank has urged.
The centre-right Social Market Foundation warned that without radical moves to find extra tax on “unearned” income, the UK faces an unsustainable national debt and stagnant growth that will blight the lives of future generations.
In a move that could be seized on by both Labour and Tory MPs searching for fresh ideas, its latest report suggests the Treasury could raise £629 billion over the next 25 years by imposing a new “Property Capital Gains Tax” on all homes sold in the UK.
The tax, which could be set at 10% of the increase in the value of the property since it was last sold, could raise so much money that it could help abolish stamp duty and inheritance tax on property, leaving the chancellor with £421bn to repair the public finances.
The report follows intense debate in recent weeks over whether a ‘wealth tax’ on assets of the better off could be used to avoid tax hikes for the wider public
Labour’s shadow chancellor Anneliese Dodds suggested she was looking at the idea and even the Tory party is reported to have polled the popularity of the measure.
Economist and former Corbyn adviser Richard Murphy estimated that the Treasury has the potential to raise up to £174bn a year to help cope with the Covid-19 crisis if it taxed wealth at the same rate as income.
Unearned wealth from house price rises is seen by some on both sides of the political spectrum as one way of avoiding hikes in income tax, National Insurance or VAT, all of which are ruled out by the last Tory manifesto.
Many Tories want to find a way to abolish stamp duty altogether, as well as slash inheritance tax, both of which they view as penalising aspirational voters.
Written by Michael Johnson, a former banker and actuary, the SMF report argues that the fairest place to levy new taxes is “unearned” gains on residential property - rather than on taxes on wages.
Once mortgage debt is taken into account, the equity in UK homes is worth more than £5 trillion pounds, a figure that has more than doubled in the last 20 years.
Rishi Sunak last week ordered a Treasury review of capital gains tax, looking at how capital gains are taxed compared to other types of income. He has also slashed stamp duty on homes for a temporary period to stimulate the housing market.
The new tax would fall largely on older people, who own most of Britain’s property, and those who inherit property and then sell it.
Even with the pandemic, house price rises in the UK are seen as having weathered the storm and are expected to increase further with any uptick in the economy.
Based on ONS data, Johnson calculates that the average pensioner household has net property wealth of £272,900, compared to £53,700 for those aged 25-34. In total, pensioner households own £2,149 billion in property equity.
Johnson said: “The vast £5 trillion pool of equity in homes presents the Treasury with an opportunity to pay for the economic damage done by the coronavirus, through the introduction of a capital gains tax on the unearned gains in the value of property.
“The alternative is that the young will have to pay for a debt-laden future. They are already hugely disadvantaged, financially, relative to older generations. Asking them to bear the burden of this crisis in the decades ahead would be unfair and unreasonable.”
The report follows last week’s projections from the Office for Budget Responsibility showing that the huge costs of the coronavirus crisis, coming on top of weak public finances, put Britain on course for record-breaking levels of debt.
The OBR’s most recent figures show public sector net debt (PSND) increasing from 86% of GDP in 2017-18 to 283% of GDP in 2067-68. If interest rates turn out to be 1% higher than modelled, then debt would rise to over 350% of GDP.
The same forecast shows public sector net borrowing (PSNB) increasing from 2.2% of GDP to 20.2% of GDP in 2067-68. The UK has never run a deficit in excess of 10% of GDP, except in wartime.
The report also argues that without significant action to arrest the growth of the debt, Britain faces “Japanification”, repeating Japan’s modern experience of low growth, deflation, a huge debt-to-GDP burden and low interest rates, all aggravated by an ageing population.
James Kirkup, director of the Social Market Foundation, said: “These reforms are bold, far-reaching and could be politically controversial: the older voters who own most British property are a powerful group.
“But the scale of the coronavirus crisis and the unprecedented outlook for the public finances mean that responsible politicians of all parties must be prepared to embrace new ideas and take bold action.
“Failure to act risks severe economic and social harm. A post-crisis era where the costs of the crisis fall more heavily on the young than the old could strain the social contract between the generations to breaking point.”
This article originally appeared on HuffPost and has been updated.