UK tax system is a significant barrier to ending regional wealth inequality, IPPR report finds

Currently, unlike many countries, capital gains tax, the levy you pay when selling an asset, is taxed at a lower rate than earnings.

This means that some of the wealthiest people, concentrated in London and the South East, can end up paying lower tax rates on their total income than those working as nurses and teachers, the IPPR said.

The report found that this is exacerbating regional inequalities. A person in the North will have, on average, £210,000 less wealth than someone from the South East by 2030, with the problem made worse by lower taxes on wealth than income.

Marcus Johns, IPPR North senior research fellow, said: “The tax system’s bias towards wealth is one of the most significant barriers to levelling up that we face.  

“This is not just unfair, it’s a handicap on our efforts to rebalance wealth and opportunity between the regions. 

“The evidence shows that 60 per cent of all private wealth in the UK is inherited rather than accumulated through work. That means people who inherit very little, or nothing, face an uphill task to build the wealth needed for a comfortable lifestyle. 

“We need to level the playing field on tax, to reflect the value we place as a society on work and productive wealth creation as opposed to wealth extraction.”

The charity is calling on aligning capital gains tax with income tax in the Budget in October.

It is also calling for reforms to property tax and inheritance tax.

Dr George Dibb, from IPPR, added: “At the moment our tax system is driving regional inequalities – it's time to take our foot off the accelerator. 

“We propose a number of reforms, including equalising capital gains tax with income tax. 

“By taxing wealth in a fairer way, government can help regionally rebalance our economy, correcting widening inequalities in wealth, and consequently in health, opportunity and living standards.”

The Chancellor Rachel Reeves was coy yesterday when asked whether capital gains tax or inheritance tax could be hiked in the Budget.

When questioned on tax increases during a visit to central Scotland, she replied: “I’m not going to write a Budget two months ahead of delivering it. We’re going to have to make difficult decisions in a range of areas.”

This comes after Sir Keir asked the country to “accept short-term pain for long-term good”, as he warned “things are worse than we ever imagined” because of a £22 billion “black hole” in the public finances.

He said: “There is a Budget coming in October, and it’s going to be painful. We have no other choice, given the situation that we’re in.

“Those with the broadest shoulders should bear the heavier burden, and that’s why we’re cracking down on non-doms.”

Labour previously ruled out increasing income tax, National Insurance or VAT.