Tax Older People More and Put Massive Levies on Homes in London and the South East, Think Tank Urges Burnham
Britain’s debate over taxation is entering a new and potentially explosive phase, with an influential left-leaning think tank calling for a major shift in the way the country raises revenue. The Institute for Public Policy Research, or IPPR, has argued that the tax burden should move away from younger workers and towards older people, wealth and property.
The proposals come as Prime Minister Andy Burnham faces increasing pressure to find additional money for public services, defence and long-term investment. Burnham has already acknowledged that Britain’s finances are under considerable pressure and has refused to rule out tax increases in his forthcoming budget.
At the heart of the IPPR argument is Britain’s ageing population. The think tank says the proportion of people aged over 65 is expected to increase from around 18 per cent in 2024 to approximately 27 per cent by 2075. As the population ages, spending on pensions, healthcare and social care is expected to place much greater pressure on government finances.
The argument put forward by the IPPR is that Britain cannot continue asking younger people who are working to carry an ever-larger share of these costs. Instead, policymakers should consider a new “fiscal contract” in which older people with earnings and significant assets contribute more.
One of the most controversial elements of the proposal is the suggestion that older workers should pay National Insurance even after reaching state pension age. Under the current system, many people above state pension age are exempt from National Insurance contributions on their earnings. The IPPR argues that this creates an unfair distinction between younger and older workers who may have similar incomes.
Supporters of the proposal say that age should not automatically determine whether someone pays a particular tax. If a 68-year-old continues working and earns a substantial salary, they argue, it is difficult to justify treating that income more favourably than the earnings of a 40-year-old worker.
The issue becomes more complicated when property wealth is considered.
Older generations are disproportionately represented among homeowners who bought their properties decades ago, when house prices were considerably lower. In London and parts of the South East, decades of property-price growth have created enormous paper wealth for some homeowners.
The IPPR therefore wants Britain to rethink the way it taxes property.
One proposal is to replace council tax and stamp duty with a proportional property tax. Under the model outlined in the report, the tax would be linked directly to the value of a property, with an indicative rate of approximately 0.65 per cent.
Such a system would represent a major change from Britain’s existing council-tax arrangements. Council tax bands in England are based on property valuations dating back to 1991, meaning that the current system does not accurately reflect today’s property values.
A proportional property tax would be different. A more expensive property would generally attract a larger annual tax bill, while cheaper properties would face a smaller charge.
This could have particularly significant consequences in London and the South East, where property prices are substantially higher than in many other parts of Britain.
For example, a property worth £1 million under a 0.65 per cent annual property tax would face a theoretical bill of about £6,500 per year, before any exemptions or transitional arrangements. A £2 million property would face approximately £13,000. These figures illustrate why the proposal could represent a dramatic change for homeowners in high-value areas.
However, the policy would also raise an important question: what happens to people who are asset-rich but income-poor?
A retired couple might own a valuable London home but have only a modest pension income. Their property may have increased enormously in value over several decades without them receiving a corresponding increase in cash income.
Under a property-based system, they could face a much larger annual tax bill despite having limited disposable income.
This is one of the strongest arguments made by critics of property taxation. They warn that such a policy could force some long-term residents to sell their homes or leave neighbourhoods where they have lived for decades.
Supporters respond that Britain’s current system already produces major inequalities. A person renting a modest property in London may pay a substantial amount every month without accumulating any asset, while a homeowner may benefit from hundreds of thousands of pounds in capital appreciation.
From this perspective, taxing property wealth more heavily could reduce the advantage enjoyed by asset owners.
The geographical impact is also politically sensitive.
London and the South East contain many of Britain’s most expensive properties. A national property tax based on market value would therefore generate significantly more revenue from these regions than from areas where houses are cheaper.
This does not necessarily mean that the policy would be designed specifically to punish London and the South East. Rather, the higher tax bills would result from the higher value of property in those areas.
Nevertheless, the political message could be difficult for Labour.
The party would have to persuade homeowners that a larger annual property tax is fair, while convincing younger renters and workers that the additional revenue will be used to improve public services and expand opportunities.
The proposals come at a particularly challenging time for Burnham’s government. Britain’s fiscal position has deteriorated as the government faces spending demands related to defence, public services and an ageing population. Recent analysis has suggested that the government’s fiscal headroom has fallen to around £15 billion, increasing pressure on the Treasury to identify new sources of revenue.
Burnham has already said that he will not be unrealistic about the condition of the public finances. At the same time, Labour has promised not to increase income tax, VAT or National Insurance for working people under its existing manifesto commitments. This makes alternative forms of taxation increasingly important if the government wants to raise substantial additional revenue.
Another major proposal from the IPPR is to change the taxation of capital gains.
Capital gains are currently taxed differently from ordinary earnings. The think tank has argued that gains from investments should move closer to income-tax rates. This would affect people who make significant profits from shares, second homes and other investments.
Again, the argument is based on the idea that wealth should bear more of the burden.
A worker earning £50,000 from employment and an investor making a similar amount through rising asset values can currently face different tax treatment. Reformers argue that this difference has become increasingly difficult to justify as wealth inequality grows.
But higher taxes on capital gains also carry economic risks.
Investors may change their behaviour if the tax advantage disappears. Some may sell assets earlier, delay transactions or move investments into more tax-efficient structures. Wealthier individuals may also consider moving their tax residence abroad.
The government therefore faces a difficult calculation: a higher tax rate may appear capable of generating substantial revenue, but if taxpayers change their behaviour significantly, the amount actually collected could be lower than expected.
The same issue applies to wealth taxation.
A comprehensive wealth tax could potentially raise significant sums from Britain’s richest households. But accurately valuing businesses, property, investments and other assets would be administratively complicated.
There is also concern about capital flight.
For this reason, some economists favour gradual reforms to individual taxes rather than immediately introducing a broad annual tax on total wealth.
Property taxation may nevertheless remain attractive because land and buildings cannot easily be moved abroad.
This is one reason why land-value taxation has gained attention in British political debate. Burnham has previously expressed support for a land tax, and discussions have considered whether such a system could eventually replace existing property taxes such as council tax and stamp duty.
The political debate is not limited to the IPPR.
The government is already considering a new mansion-tax-style surcharge on expensive properties. The existing plan is for a council-tax surcharge on homes worth more than £2 million from 2028. Current estimates suggest the measure could raise around £400 million annually.
There have also been reports that the threshold could be reduced to £1.5 million. Such a change would substantially increase the number of affected properties and could potentially raise around £800 million a year.
Compared with the IPPR’s proposed proportional property tax, however, these figures represent a much narrower approach.
The political appeal of targeting expensive homes is obvious. It allows the government to argue that those with substantial property wealth should contribute more without imposing the same tax increase on millions of ordinary households.
But even a mansion tax has potential difficulties.
Property valuations can be disputed, and homeowners may argue that their house is valuable only because of its location rather than because they have a large disposable income. A retired person living in a family home in London could theoretically have significant wealth but little cash available to pay an additional annual charge.
This is why any serious property-tax reform would probably need protections for people on low incomes.
Possible mechanisms could include deferral arrangements, exemptions or income-based relief. Under a deferral system, for example, a homeowner might postpone payment until the property is sold or transferred after death. Such mechanisms could prevent people from being forced out of their homes solely because of a tax bill.
However, these measures would also reduce the immediate revenue available to the Treasury.
The generational argument behind the IPPR proposal is perhaps even more politically sensitive.
Younger Britons face high rents, difficult conditions in the housing market and rising costs of living. Many struggle to accumulate the deposit required to buy a home. Older homeowners, meanwhile, may have benefited from decades of property appreciation.
Supporters of reform say this creates a generational imbalance that the tax system should address.
Critics argue that it is unfair to portray older people as a privileged group. Many pensioners have modest incomes and rely heavily on state support. Some have spent their entire working lives paying taxes and saving for retirement.
There is therefore a danger that a debate about wealth becomes a debate about age.
The more defensible argument may be that wealthy older people should pay more, rather than all older people simply paying more because of their age.
This distinction could be crucial for Labour.
The party could potentially support reforms that target high-value property, investment income and affluent pensioners while protecting low-income retirees. Such a policy would be easier to present as a question of ability to pay rather than punishment for reaching a particular age.
Nevertheless, the IPPR proposal represents a fundamental challenge to the way Britain has traditionally approached taxation.
For decades, governments have relied heavily on taxes on employment and consumption. The think tank argues that this model is becoming increasingly unsustainable as the population ages.
By 2075, the financial consequences of an ageing population could be enormous. Spending on pensions, health and social care could approach 10 per cent of GDP, according to the analysis cited by the IPPR.
That makes the debate difficult to avoid.
Britain will need to decide how it pays for an older population while still allowing younger generations to build homes, businesses and savings. There is no painless solution.
Higher taxes on property could raise revenue but create problems for homeowners. Higher taxes on capital could affect investment. Higher taxes on older workers could change retirement decisions. Cutting public services could damage living standards and increase pressure on vulnerable people.
The government must therefore choose which compromises it believes are fairest.
For Burnham, the proposals from the IPPR arrive at a critical moment. He has already indicated that difficult decisions may be necessary, while his government faces pressure to fund defence, public services and ambitious domestic programmes.
The question is whether he will embrace the think tank’s more radical proposals or adopt a narrower approach.
A comprehensive property tax and greater taxation of older workers would represent a major transformation of Britain’s tax system. A lower-threshold mansion tax and selected reforms to capital gains would be less dramatic but could raise considerably less money.
Whatever route Labour chooses, the debate is unlikely to disappear.
Britain’s ageing population, high property prices and unequal distribution of wealth are structural problems that cannot easily be solved by one annual budget. The tax system will increasingly have to confront the question of who owns Britain’s wealth and who should pay for the services required by society.
The strongest case for reform is not that older people are responsible for Britain’s financial problems. Nor is it that London homeowners should be singled out simply because they live in an expensive region.
The argument is that a tax system built largely around income from work may no longer be sufficient when enormous amounts of wealth are concentrated in property and financial assets.
For Labour, the challenge will be to turn that argument into policy without creating a new generation of taxpayers who feel unfairly targeted.
If Burnham chooses to move taxes towards wealth and property, he will need to explain not only how much people will pay, but also why the system is fair.
That explanation could determine whether these proposals become the foundation of a new British tax settlement—or another deeply divisive political battle over who should pay for the country’s future.