Budget must tackle wealth divide to invest in public services – Plaid Cymru

Plaid Cymru Treasury spokesperson, Ben Lake MP, has called for comprehensive tax reform to fund investment in public services and infrastructure, ahead of the UK Government’s Spring Budget on Wednesday (6 March).

Mr Lake said that “the current societal crisis our communities are facing should force a fundamental rethink of our approach to taxation.”

He pointed out that much of the UK’s wealth remains untaxed, with people profiting from investments currently taxed at lower rates than those earning through work.

Plaid Cymru calculates that equalising Capital Gains Tax with Income Tax could generate up to £15.2 billion annually for public services.

Tax reform

The Ceredigion MP urged the Chancellor to use the Budget to focus on “the urgent need for investment in public services and infrastructure”, which could be achieved through reform of the tax system.

Wealth earned through investment is taxed at a much lower rate than income, he said, citing the example of Rishi Sunak. Her earned £140,000 as Prime Minister last year, which is subject to income tax.

Additionally, he received nearly £1.8 million from his stake in an investment fund. This capital gain was taxed at 20%, far below the 45% rate of income tax he would have paid if that sum had been treated as income in the UK tax system.

Poverty

Mr Lake MP said: “Wales has the highest levels of poverty in the UK, with no significant improvement in people’s outcomes over recent years. The number of people relying on food banks has risen, and the percentage of people living in relative income poverty remains high.

“It is within this terrible context that the Chancellor will present his budget. While the public discussion has centred around tax cuts, it would be a mistake to neglect the urgent need for investment in public services and infrastructure.

“Fundamental tax reform could help fund such investment. It may not feel like it, but the UK remains the sixth largest economy in the world.

“Currently, income earned from work is taxed at a much higher rate than income derived from investments. The Chancellor should consider whether this discrepancy is appropriate given the significant strain on public services, and indeed whether we can afford it.

“The current societal crisis our communities are facing should force a fundamental rethink of our approach to taxation. Our tax system should focus on supporting economic activity and reducing inequality, while ensuring sufficient resources are available to meet the costs of public services. The current tax system is failing on all three counts.”

Tax cuts

During interviews with broadcasters on Sunday, the Chancellor, Jeremy Hunt, said he wants the UK to “move towards a lower tax economy” and that he feels a “moral duty to leave as much money in people’s pockets as possible”.

But he said any tax cuts will have to be “sustainable” and “affordable”.

Ruling out borrowing to pay for tax cuts, Mr Hunt told the BBC’s Sunday with Laura Kuenssberg programme: “I do want, where it is possible to do so responsibly, to move towards a lower tax economy, and I hope to show a path in that direction.

“This will be a prudent and responsible Budget for long-term growth, tackling inflation, more investment, more jobs and that path to lower taxation as and when we can afford that.”

He told Sky News the 2p cut to national insurance in the autumn statement in November was a “turning point” and he hopes to “make some progress on that journey” on Wednesday.

Mr Hunt’s tone over recent months appears to have become more cautious on the prospect of delivering the tax cuts many Conservative MPs have been hankering for in the Budget.

In January, Mr Hunt compared himself with Nigel Lawson, Margaret Thatcher’s tax-cutting former chancellor, as he argued the Government’s economic plan was working and that meant “cutting taxes”.

But only weeks later in February, he was warning the Cabinet that the prospect for tax reductions in March looked more narrow than it did at the autumn statement.

Recession

Since those comments, data from the Office for National Statistics has confirmed the British economy slipped into recession at the end of 2023.

In an interview with The Sunday Telegraph, Mr Hunt said the financial forecasts, setting out how much so-called “headroom” he has in order to meet his fiscal rules, has “gone against us”.

The outcome is likely to curtail his ability to serve up pre-election giveaways and chop back the high overall tax burden.

According to The Sunday Times, the Office for Budget Responsibility told the Chancellor on Wednesday he has £12.8 billion of headroom to play with – £2 billion less than the figure the Treasury is said to have previously been basing its calculations on.

The newspaper said the Chancellor is due to meet Prime Minister Rishi Sunak on Sunday evening to make a final decision on whether a 2p cut to the basic rate of income tax is affordable in the Budget.