Labour told taxes need to be shifted from young to older property owners

It comes after Prime Minister Andy Burnham refused to rule out tax rises in the Budget, telling ITV News hat he “won’t be unrealistic” about the state of the public finances.

Britain needs to shift taxes away from young workers towards older people and property, an influential think tank report has said.

The Institute for Public Policy Research (IPPR) argued the move is necessary to address the rising costs of an older population, with ageing set to account for almost 80% of the additional fiscal pressure facing the UK by 2075.

The paper, written by Oxford Professor Ben Ansell, calls for a new “fiscal contract” and suggests extending national insurance (NI) to older earners, and replacing council tax and stamp duty with one proportional property tax.

It comes after Prime Minister Andy Burnham refused to rule out tax rises in the Budget, telling ITV News hat he “won’t be unrealistic” about the state of the public finances.

Questions remain over how some Labour promises, including £5bn in defence spending which was announced before he entered No 10 and his plans for major reforms to the social care system, will be paid for.

Prof Ansell’s paper published today for the IPPR – which is influential on Labour policy and some of whose recruits have become ministers – argues that these pressures make reform of Britain’s tax system increasingly unavoidable.

He said: “Britain cannot meet the fiscal challenges of the coming decades simply by asking people in work to pay more and relying on another round of stealth taxes.

“Ageing is going to become by far the biggest source of pressure on the public finances.

“Yet our tax system has increasingly shifted responsibility towards younger workers while protecting many of those who have benefited most from decades of rising property and asset wealth.

“Reform is politically difficult, but avoiding it has simply given Britain an ever more complicated tax system.

“We need a new fiscal contract: one that raises the revenue the country will need, shifts more of the burden from work towards wealth and property, and is honest with the public about who pays and why.”

The report said that all industrialised societies now face the “challenge of an ageing population”, with the percentage of over-65s in Britain having risen from 14% in 1974 to 18% by 2024.

By 2074, it is expected to be 27 per cent. “Assuming benefits remain the same, that would push the cost of the state pension from 5 per cent of GDP to 7.7 per cent,” it said.

“Adding in healthcare costs – rising with age – and social care, some estimates have the fiscal impact of ageing adding up to almost an extra 10 per cent of GDP by 2075.”

While benefits for older Britons are expected to become costlier, the IPPR said they are among the most tax-advantaged groups, largely because they do not pay NI.

The report argues the “hardest hit” by recent decades of British fiscal policymaking have been those in work, “particularly younger people repaying student loans through the tax system” who also struggle to afford housing comparable to that of their parents and grandparents.

Prof Ansell makes several suggestions to make the tax system fairer, including extending the 2 per cent National Insurance surcharge, currently paid by employees under 65, to pensioners and replacing council tax and stamp duty with a proportional property tax set at a rate of around 0.65 per cent.

The report comes as the fiscal squeeze facing new Chancellor John Healey ahead of his inaugural Budget has been laid bare as official figures showed government borrowing unexpectedly rose to £1.8bn last month.

The Office for National Statistics (ONS) said government borrowing stood at £1.8 billion in July, £700m or 68.7 per cent higher than a year ago and confounding expectations. The hike came despite a record July for income tax receipts.

Inflation also surged to a four-month high of 2.9 per cent in July amid the fallout from the Iran war.

Experts, including the National Institute of Economic and Social Research (Niesr), have warned Mr Healey that he will need to either raise taxes or cut spending elsewhere as pressure on the public finances has left no room for extra borrowing.

The Chancellor has told the Cabinet they must be prepared to make cuts to finance some of the new pledges.