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Britain needs a new fiscal settlement that shifts taxes away from young people and work and instead towards property, older people and wealth, argues leading political economist

Population ageing will account for almost 80 per cent of the additional fiscal pressure facing the UK by 2075, according to a new paper published by IPPR today.

Analysis in the paper finds that ageing accounts for less than half of the additional fiscal pressures facing the UK over the next decade. But its share rises to two-thirds by 2050 and then almost four-fifths by 2075, dwarfing the longer-term pressures associated with higher defence spending, the net zero transition and lower migration.

The scale of the demographic challenge is stark. The proportion of the population aged over 65 is expected to rise from 18 per cent in 2024 to 27 per cent by 2075. The cost of the state pension and higher health and social care costs could result in ageing adding almost 10 per cent of GDP to fiscal pressures by 2075.

The paper by Oxford Professor Ben Ansell, argues that these pressures make reform of Britain’s tax system increasingly unavoidable.

Yet successive governments have found fundamental tax reform extraordinarily difficult. Instead, they have increasingly relied on frozen thresholds, stealth taxes and a growing collection of smaller levies and relief changes, resulting in a system that is increasingly complex and heavily tilted towards taxing work and younger earners while protecting accumulated wealth and older homeowners.

The disparity is particularly striking for younger graduates. Someone earning £45,000, £70,000 or £105,000 in retirement faces marginal tax rates of 20, 40 and 60 per cent respectively. A younger graduate repaying a student loan and paying employee national insurance can face marginal rates of 37, 51 and 71 per cent at the same incomes.

The paper argues that a new fiscal contract should therefore rebalance the system away from younger workers and towards wealth, property and unearned gains. The author suggests:

Replacing council tax and stamp duty with a proportional property tax set at a rate of 0.65 per cent
Equalising capital gains tax with income tax rates, alongside an investment allowance to protect normal returns
Extending national insurance to older earners, including by applying the existing 2 per cent NI surcharge on earners to pensioners

The report also says that work needs to be done to prepare the tax system for an AI-driven economy, including exploring a progressive consumption tax, an international AI token tax, and taxation of unearned returns to AI capital.

Ben Ansell, professor at the University of Oxford and author of the paper, said:

“Britain cannot meet the fiscal challenges of the coming decades simply by asking people in work to pay more and relying on another round of stealth taxes.

“Ageing is going to become by far the biggest source of pressure on the public finances. Yet our tax system has increasingly shifted responsibility towards younger workers while protecting many of those who have benefited most from decades of rising property and asset wealth.

“Reform is politically difficult, but avoiding it has simply given Britain an ever more complicated tax system. We need a new fiscal contract: one that raises the revenue the country will need, shifts more of the burden from work towards wealth and property, and is honest with the public about who pays and why.”

ENDS

Professor Ben Ansell is available for interview

CONTACT

Liam Evans, head of news and media: 07419 365 334 l.evans@ippr.org

David Wastell, director of news and communications: 07921 403651 d.wastell@ippr.org

NOTES TO EDITORS

Advance copies of the report are available under embargo on request
IPPR (the Institute for Public Policy Research) is the UK’s most influential think tank, with alumni in Downing Street, the cabinet and parliament. We are the practical ideas factory behind many of the current government’s flagship policies, including changes to fiscal rules, the creation of a National Wealth Fund, GB Energy, devolution, and reforms to the NHS. As an independent charity working towards a fairer, greener, and more prosperous society, we have spent almost 40 years creating tangible progressive change - turning bold ideas into common sense realities. www.ippr.org