A “pandemic profits levy” should be part of a £40bn plan to tax the better off and repair the public finances hit by the Covid outbreak, a leading economic think tank has urged.
A major new report by the Resolution Foundation calls for a tax hike on those companies that have done well out of the pandemic and predicts that the economy won’t get back to normal until 2023 at the earliest.
The plan proposes that tax rises – including a new £17bn “health and social care levy” – should be used to balance the books over time, rather than a fresh round of austerity-style spending cuts.
The health levy would be an annual flat rate tax of 4% on all incomes, including capital gains profits, over £12,500, to be offset by a 3% cut in employee National Insurance and abolition of some National Insurance contributions for the self-employed.
Revenues raised would be used to help send an extra £11bn to the NHS but also channel £6bn to social care.
The Resolution Foundation says that “the public will expect those that have financially suffered least during the crisis to contribute” more.
It calls for a “pandemic profits levy” of 10% on “supra-normal profits” of the small minority of firms that have done better than normal in 2020.
A recent Oxfam report highlighted that 32 of some of the world’s largest companies saw profits jump by £84.1bn in 2020.
The five tech giants Google, Apple, Facebook, Amazon, and Microsoft account for $46bn in excess profits during the pandemic, with Microsoft accounting for close to $19bn alone.
Online delivery specialists like Ocado and Boohoo, as well as drugs companies and antiseptic goods firms, have seen revenues rise.
Other measures proposed in the new study include a £10bn increase in corporation tax from 19% to 22% and a £9bn raft of tax increases on the richest with council tax rises on properties worth more than £2m and cuts in capital gains and inheritance tax reliefs.
The “Unhealthy Finances” report – published in partnership with the Standard Life Foundation – recommends that with interest rates stuck near zero, the task of repairing the public finances must start later but ultimately go further than in past recessions.
While raising taxes by £40 billion will be difficult, it is not without precedent as the Tories’ two 1993 Budgets raised taxes by £48 billion.
Torsten Bell, chief executive of the Resolution Foundation, said: “Fiscal hawks focus on the need to pay back the huge borrowing racked up this year. But this is a red herring. What matters instead is the how much our economy is left permanently smaller by the pandemic.
“The Office for Budget Responsibility (OBR) thinks it will be 3% smaller in 2024-25 than expected pre-crisis. It’s the fiscal damage that follows, rather than the need to ‘pay for’ the crisis spending, that requires a consolidation.”
He added: “Taxes should certainly not rise now – the overwhelming priority is to support the economy through a difficult winter. But fiscal multi-tasking may mean taxes need to rise significantly in the middle of this decade.
“Such increases would be very challenging, but they have been done before by governments of both parties. Whether the requirements of the economic cycle will fit with realities of the political one is, as ever, a separate question.”
Mubin Haq, chief executive at the Standard Life Foundation, said: “There is no appetite for a return to austerity which would increase already deep divides. Tax rises are the obvious and fairest route, ensuring essential services remain in place and helping to build social care provision we can be proud of.
“We know there is significant public support for tax rises once the time is right. Such rises need to be proportional with those with the deepest pockets contributing the most. Government needs to take a long-term view, building a fairer society and ensuring public finances are in a good position once the next economic shock comes along.”
The Resolution Foundation report came after the publication of a separate study commissioned by the Treasury that found increasing capital gains tax (CGT) rates to bring them into line with income tax could raise £14 billion.
The Office of Tax Simplification (OTS) report focused on reforms to CGT, a levy applied on the profits on the sale or disposal of shares and other property, for which there is currently an annual allowance of £12,300.