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Proposed pay freezes would harm the recovery, while taxing income from wealth like income from work could provide stronger post-crisis public finances - IPPR

Reacting to the leaked Treasury assessment reported in today’s Telegraph, researchers at the UK’s leading progressive think tank warn that some of the proposed measures would be ineffective or even counterproductive to the recovery.

Shreya Nanda, IPPR Economist, said:

“The leaked document shows that the Treasury are looking primarily at measures that will put the burden onto ordinary people. We cannot let this crisis and the response turn into a giant upwards redistribution, as after 2008. The Job Retention Scheme alone is already handing £21 billion to banks and landlords. We urgently need to take a different approach that spreads the burden of the crisis fairly, starting with taxing income from wealth.”

Carsten Jung, IPPR Senior Economist, said:

“The Treasury’s leaked report may appear bleak, but there is no need to panic. It is certainly right to say we needed a plan for firm public finances to kick in once the economy recovers, but in times of low interest rates, we can afford to spend what it takes to protect people’s health and ensure the recovery is fair and sustainable.

“To achieve the recovery, a broad-based stimulus will be needed that drives up demand, reduces business uncertainty and supports the private sector in generating high quality jobs.

“Once the recovery is under way, smart tax increases will be central to balancing the books in an economically effective and socially just way. UK tax rates are low compared to other G7 countries. There are a range of taxes that could be increased that would not hurt the economy while at the same time addressing huge injustices in the system.

“For instance, there is no economic reason why income from capital gains is taxed at a lower rate than income from work. This disparity mainly benefits the well-off, and ending the unfair tax break has the potential to raise £26bn per year – a much higher gain for the Treasury than the £3.25bn they suggest could be raised annually by freezing public sector pay.”

Harry Quilter-Pinner, Head of the IPPR Better Health and Care Programme, said:

“Public sector workers, from nurses to teachers, have been the heroes of the Covid-19 pandemic. They have put their lives at risk to save ours. Their service to our country must be rewarded with a pay rise, not taken for granted with a pay freeze. We cannot return to the dark days of austerity

“IPPR research has shown that pay increases for public sector workers often result in higher economic growth and tax receipts because it drives higher spending in the economy. With new figures showing GDP has fallen significantly, a pay rise for workers should be a key part of a fiscal stimulus to get our economy going, not a pay freeze.”

ENDS

CONTACT

David Wastell, Head of News and Communications: d.wastell@ippr.org

Robin Harvey, Digital and Media Officer:r.harvey@ippr.org

NOTES TO EDITORS

IPPR analysis released today reveals that up to 45 per cent of the net cost of the furlough scheme will be spent on rent and debt repayments to landlords, banks and other lenders. The report Who Wins and Who Pays? Rentier power and the Covid crisis is available here: https://www.ippr.org/research/publications/who-wins-and-who-pays
IPPR research shows that taxing income from wealth the same as income from work could raise £90bn over five years for the Treasury. The report Just Tax: reforming the taxation of income from wealth and work (2019) is available here: https://www.ippr.org/research/publications/just-tax
IPPR research indicates that pay increases for the public sector drive growth and increased tax receipts. The report Uncapped Potential: The Fiscal and Economic Impact of Lifting the Public Sector Pay Cap (2017) is available to download here: https://www.ippr.org/files/2017-11/uncapped-potential-november2017.pdf
IPPR Senior Economist Carsten Jung outlined four pillars for strong public finances after the pandemic in an article available here: https://blogs.lse.ac.uk/politicsandpolicy/covid19-strong-public-finances/
IPPR is the UK’s pre-eminent progressive think tank. With more than 40 staff in offices in London, Manchester, Newcastle and Edinburgh, IPPR is Britain’s only national think tank with a truly national presence. www.ippr.org