The UK’s tax system is “unfair and outdated” and needs radical reform as it is worsening inequality, says a new report.
Two people who earn the same can end up paying vastly different amounts of tax depending on the source of their earnings, said the Institute for Public Policy Research (IPPR).
The wealthiest people are more likely to get income from wealth and can end up paying less tax than they would if their income was from work, said the think tank.
The wealthiest are also more able to avoid their tax obligations by shifting their income source from wages so they are paid in the form of capital gains and dividends, which are taxed more lightly, it was claimed.
“This dynamic means the rich can continually get richer, whilst everyone else struggles to catch up,” said the report.
Raising taxes on income from wealth to the same level as those on income from work is a necessary step to break this cycle and restore a sense of justice to the UK’s economic system, said the IPPR.
Tom Kibasi, director of the IPPR, said: “This is a matter of basic fairness. It is fundamentally wrong that people who get their income from betting on the stocks and shares or playing the property market pay less tax than those who go out to work each day to provide for their families.
“The current tax system works for the rich, designed to help them avoid paying their fair share. Taxing all income in the same way would be a crucial step forward.”