Ignacia Pinto says the autumn statement was a missed opportunity to tax wealth and improve gender equality
After the turmoil created by former Chancellor Kwasi Kwarteng’s ‘mini-budget’ back in September, there was a lot of expectation for the fiscal statement from his successor, Jeremy Hunt. In an attempt to rebuild credibility and fiscal responsibility, Hunt announced a series of tax increases in the short term and cuts to public services in the medium term.
The Women’s Budget Group’s work highlights the importance of taxes as a feminist issue. Due to caring responsibilities in different stages of life, women in general have lower incomes and lower levels of wealth, but they rely more on public services and social security. Taxes and public spending are therefore an important way to redistribute resources and reduce gender disparities. The autumn statement was a missed opportunity to really reform the tax system into a fairer regime where wealth is taxed at the same rate as wages and those with the most contribute the most.
The statement saw tax allowances on income from dividends and capital gains cut, which means more people will start paying taxes on these types of income. Although this is a small step in the right direction, the Chancellor could have done much more towards equalising taxation of wealth income, like capital gains, with income from employment. This would move us towards a fairer tax structure and would raise a considerable amount of money: equalising taxes on income from wealth and work could raise £50bn from 2022/23 to 2026/27, which could go towards improving our public services and avoiding spending cuts.
The Chancellor also decided to freeze several tax thresholds, including income tax and national insurance contributions, until 2028. Instead of freezing tax thresholds and using ‘fiscal drag’ to raise tax revenues, the Chancellor could have uprated thresholds in line with wage growth and, at the same time, increased tax rates. This would have been a more progressive way to raise tax revenues from income tax. Freezing thresholds means more people will fall under higher tax bands but everyone pays the same extra amount: the extra tax paid by a person earning just above the threshold will be the same as for a person earning well over the threshold. Raising tax rates would ensure a more proportional contribution from wealthier earners.
There were also changes to council tax. The Chancellor announced an increase in the limit at which councils can raise tax without a referendum from 3% to 5% per year from April 2023. The Government’s goal is to allow councils to raise more money for social care and improve its provision. But using council tax to do so is the wrong way to do it because it will deepen local inequalities for two main reasons. Firstly, council tax is a highly regressive tax, with those in the lower bands paying proportionally far more than those in the highest bands. It is based on outdated property values that do not reflect recent changes in property prices. Council tax is in need of an overhaul in the short term that would include a revaluation of properties and a more progressive schedule. In the medium term, it should be replaced by a tax on land. Secondly, relying on council tax to fund social care will widen local inequalities as poorer local authorities will be able to raise less money. More central funding is needed, especially for councils with a more vulnerable population.
Energy has been at the forefront of the public debate during 2022, and it was positive to see the Chancellor announce an extension of the Energy Profits Levy to 2028 and an increase in the rate to 35%. This ‘windfall tax’ will be extended to electricity generators at a rate of 45%. Energy companies are making historic profits while households are struggling to pay their bills, so it is only fair that they pay higher taxes on unexpected gains. But, again, the Chancellor could have done more. In addition to these windfall taxes on energy profit, tax exemptions and reliefs for oil and gas companies should be abolished and, instead, fiscal incentives given to green and clean energy sources.
The other half of Hunt’s plan to ‘balance the books’ is to cut public spending from 2025 onwards. Some sectors are ‘protected’, with no real-term cuts in the near future, while others will see a squeeze on their budget. While there will no be cuts for the NHS, core schools funding, defence and aid, all other departments will have a real cut of 0.7% per year between 2024/25 to 2027/28.
At the Women’s Budget Group, we argue that there are better ways to restore credibility and financial stability, that don’t include cutting our already weakened public services. Our public services are the foundations of our economy – we cannot have a prosperous economy without high quality healthcare and schools. The Government should invest now in the foundations of the economy and in greening our energy and physical infrastructure. This is how to improve our economy now and to get the kind of wellbeing, green and caring economy we want, and to prevent future generations from having to pay the very high costs of environmental breakdown and inadequate essential services. A sustainable economic plan that is centred on strengthening the foundations of our economy would also strengthen the UK Government’s financial credibility.