Experts at the Wealth Tax Commission – a body made up of experts, politicians and tax professionals – have said the best way to shore up UK government finances battered by the coronavirus crisis will be a one-off ‘wealth tax’.
The report says instead of increasing income tax or VAT, the government should look at a tax on wealthy individuals. Predictably, the report has prompted a lot of very strong views, both for and against the idea. Given the publicity generated, thought we should comment too.
They predicted taxing wealthy households (considered to be those with assets of £1m) an additional 1% a year, collecting an estimated £ 260 billion over five years. In response to the proposals, the Treasury said it had already taken measures to ensure that its equal share of tax is paid by the rich.
The wealth tax proposal is a response to skyrocketing public spending caused by the pandemic. The government is spending £280 billion on initiatives to tackle Covid-19 and to boost the UK economy this year alone.
Dr Arun Advani, assistant professor at the University of Warwick and author of the report, said: “We’re often told that the only way to raise serious tax revenue is from income tax, national insurance contributions, or VAT. “This simply isn’t the case, so it is a political choice where to get the money from, if and when there are tax rises.”
There are signs that income inequality has already risen with the coronavirus pandemic, with the Institute for Fiscal Studies finding in June that the bottom 10% of earners were the most likely to have jobs in industries that had shut down or could not be done at home.
Levying a wealth tax of 1% a year for five years for a two-person household with more than £1m of wealth would raise the equivalent of raising VAT by 6p or the basic rate of income tax by 9p over the same period. One-off wealth taxes were used following major crises before, including after the Second World War in France, Germany and Japan, and after the global financial crisis in Ireland. In the midst of the ongoing coronavirus pandemic, Argentina this week passed a levy on the richest in society to pay for medical supplies and relief measures.
According to the Wealth Tax Commission, a one-off wealth tax applied to people with high net worth would not deter economic activity. They also believe that it would be hard to escape by moving money offshore or emigrating. Under the proposals, properties, pension pots, investments and business wealth would be subjected to the wealth tax. But the tax would not be applied to debts, including mortgages. The Wealth Tax Commission wants to see the tax charged on all high net worth individuals who are resident in the UK, including “non-doms”.
Another scenario considered in the report is setting the threshold at £4 million per household, which would raise £80 billion over five years. Neil Jones, tax and estate planning specialist at Canada Life, said: “By any measure the UK is already one of the highest tax paying nations in the G7. As welcome as a debate on the pros and cons of introducing a one-off wealth tax may be, many countries across the world have tried and failed to implement similar moves. “It’s thought of as regressive rather than progressive by the electorate, and ultimately as any change would be a question for the political elite, is likely to be as popular as turkeys voting for Christmas. “Rather than focus on tax raising measures, we should be looking at growing our way out of the hangover from the pandemic, through job creation and security, not a one-off tax on wealth.”
Gibson Lamb’s view is that in practice such a proposal might be hard to implement. If the wealth consists of a home, a pension fund and maybe your own small business, how would the family raise the cash to pay the tax bill? Significant pension withdrawals usually trigger a tax bill too. However, at some stage the extraordinary amount of borrowed will need to be repaid and a wealth tax is an option that the Chancellor will no doubt consider.