LONDON (Reuters) - The days of tax cuts in Britain are over and the baby-boomer generation should prepare for higher wealth taxes to fund an inevitable surge in healthcare costs, the Resolution Foundation think tank said on Monday.
The new research showed spending on education, social security and above all health looks set to rise by 20 billion pounds ($28 billion) a year in today’s money by the end of the next decade and by 60 billion pounds a year by 2040.
Britain has steadily brought down a budget deficit that stood at 10 percent of economic output in 2010 mostly through spending cuts for many government departments.
But many of the easier-to-make cuts to spending have already been made, putting pressure on the government to consider raising more revenues through taxes.
Finance minister Philip Hammond, who is due to deliver a half-yearly budget statement on March 13, has cut Britain’s budget deficit faster than expected this financial year.
But the Resolution Foundation report showed the government will have its hands tied by rising public spending over the coming years.
Most of the increase will be caused by spending on health as Britain’s population ages - a demographic timebomb that means the “age of tax cuts is over”, David Willetts, chair of the Resolution Foundation and a former Conservative government minister, said.
“The time has come when we boomers are going to have reach into our own pockets. The alternative could be an extra 15 (pence) on the basic rate of tax, paid largely by our kids.”
Baby-boomers are considered to be people who were born before the mid-1960s.
Underlining why baby-boomers will need to shoulder more of the tax burden, the Resolution Foundation said millennials - born between 1981 and 2000 - spend more of their income on housing costs than any generation since the late 19th century.
But home ownership in Britain has plummeted over the last 20 years among young adults, who have had to pay more toward pensions while bearing the brunt of weak wage growth since the financial crisis.
As a result, wealth has become increasingly skewed toward older people.
“For many years, higher wealth taxation has been off the political agenda,” Willetts said.
“But unless we act, at some point we will face a choice between changing our approach to taxation, or cutting access to the NHS and letting social care get into an even deeper crisis. We can’t delay that debate any longer.”
Willetts added that politically difficult reforms on wealth, inheritance and local council taxes would be needed.
Tax as a share of economic output in Britain rose to 33.2 percent in 2016, the highest level since 2011, according to the Organisation of Economic Co-operation and Development (OECD).
Still, this stands slightly below the average of OECD countries of 34.3 percent. Britain ranks above the OECD average in terms of revenue collected from income and property taxes, but is below average when it comes to social security and corporation tax.
Reporting by Andy Bruce, Editing by William Schomberg