Public spending is expected to rise by £76bn a year, requiring income and wealth to be taxed more efficiently and fairly, The Resolution Foundation has warned.
Wealth taxes will be needed to fund a £76bn a year increase in government spending by the end of the decade, caused by an ageing population and more expensive healthcare, the foundation has said.
While stressing that public spending pressures were nothing new for Britain, the thinktank said previous ways of raising money – such as reducing defence spending and raising NI contributions – would no longer be feasible.
It predicted the government’s pension bill would rise by £24bn a year because of the baby boomer generation reaching retirement age and a rapidly ageing population. Extra pressures on the NHS resulting from this demographic change would cost an additional £52bn.
As a result, public spending would rise to 44% of the economy’s GDP, up from 42% currently. For reference, Germany’s public spending pre-Covid was 45% of GDP.
The Resolution Foundation concluded that wealth – which had grown from three times national income in the early 1980s to eight times currently – was under-taxed.
Dan Tomlinson, a senior economist at the Resolution Foundation, said: ‘The swift demographic change that Britain will experience in the 2020s alongside rising health costs is set to increase public spending by £76bn a year. We’ll all benefit from people living longer, healthier lives – as well as reducing our carbon footprint – but it will have to be paid for.’
Mr Tomlinson said that over the past seven decades, the UK has expanded the NHS, state pension and education spending, and managed those costs by shrinking the army and growing the size of the state on the back of higher NI contributions.
‘We’re unlikely to be able to simply repeat that approach in future’, he said.
‘We’ll need to tax income more efficiently and fairly, and find new sources of tax revenue such as from better taxing wealth.’
In related news, the number of people of pension age in Scotland is estimated to grow by 30% by 2045.
Photo by Diana Parkhouse
Leave a Reply