How would the public fill the £40bn funding gap?


Rishi Sunak and his Chancellor have a £40bn funding gap to fill and the Chancellor has said nothing is off the table. But how would the public do the job? What are the public’s priorities? Two years ago, Demos ran focus groups and conducted a poll to find out how they would raise £80bn between now and 2030 from individuals – not from businesses. We found that four key measures would raise £33bn and would be broadly popular – and that was without any windfall taxes.

In other words, if the new Prime Minister wants to keep the markets and the public happy, he can.

We found that the most popular measure was raising income tax on earnings over £100,000 a year by 10p in the pound. 69% of the public would support this and only 10% oppose. The numbers are more or less the same for ABC1s as C12DEs. This would raise £8bn.

Also very popular was introducing VAT on private school fees. 62% supported this – including 67% of Conservative voters – and 13% opposed. This would raise £2.4bn.

One change that has been canvassed recently is reducing higher rate relief on pension contributions. This would mean reducing the tax relief on pension contributions for those earning more than £50,000 per year to the same 20% rate as those earning less than that. 49% of the public supported this, with19% opposing it. This would raise £10bn given current rates, but £10.9bn if the tax rate on incomes over £100,000 were increased.

Also popular – and with more revenue raising potential than any other measure – would be abolishing capital gains tax and taxing profits from asset sales in the same way as income from paid work. This was supported by 46% of the public with 18% opposing. Conservative voters were particularly keen, with 54% supporting it and 20% opposing. This would raise £10bn at current rates, but £11.5bn if the tax rate on incomes over £100,000 were increased.

Taken together these measures would raise about £33bn. And, to repeat, this is before any windfall taxes – which of course might fill the remaining gap.

There were other measures that were also potentially popular, although the cost of living crisis would make them more difficult now. For example, giving the self-employed the same benefits as employees and making them pay the same National Insurance Contributions would raise £1.5bn. 63% were in favour and 11% opposed. Raising higher rate income tax by 5p and the basic rate by 2p while increasing the personal allowance to protect those with incomes less than £20,0000 a year was also moderately popular, at least at the time, even amongst those who would end up paying more.

And what would the public not do? The most unpopular proposals were a rise in VAT, a special tax on those over 40 to cover the costs of social care (unpopular even amongst those under 40), and taxing the profits on first home sales over £500,000.

We did not ask participants to choose between tax rises and cuts in public services and benefits, but other research, for example by Ipsos Mori, has shown that 44% of the public would prefer to pay more tax themselves to protect public services, as compared with 29% who would prefer to see public services cut. What our research and the Ipsos Mori research put together show, above all, is that the choice between tax rises and cuts in public services is just that: a choice. If Rishi Sunak wants to protect public services, he can.

For full details of the research see our report, A People’s Budget.

Written by Charles Seaford, Senior Fellow.