The UK’s tax system perpetuates regional inequality by taxing income from labour at a higher rate than income from wealth, according to a new research paper from the Institute for Public Policy Research. 

As a result, residents of London and the Southeast of Britain, where wealth is concentrated, tend to accrue even greater wealth, while people in other regions are held back by relatively higher tax rates. 

IPPR’s analysis found that a person in the North of England will have, on average, £210,000 less than someone from the South East by 2030. 

It said about 40% of investment income in the UK is generated in London and the South East despite being home to a quarter of the population, and an increasing share of total unearned income is accumulating there. For example, it said chargeable capital gains per head amount to over £2,400 in London but only £500 in Wales. 

IPPR recommends taxing income from wealth – such as capital gains, dividends and inheritance  – at the same rate as income tax. It advocates equalising capital gains tax with income tax as a first step, as a way of halting the increasing regional wealth gap.  

The report, entitled ‘Supporting the status quo: How the taxation of wealth in the UK grows regional divides’, urges the government to use the Autumn Budget to begin a process of rebalancing the tax system. 

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.”  

“The evidence shows that 60% 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 IPPR paper, by Henry Parkes and Marcus Johns, is available for download at http://www.ippr.org/research/publications/