Time for a Wealth Tax?
With tax rises inevitable, might the Chancellor reach for a wealth tax option to tackle the growing fiscal gap?
At the moment, we are still in the realm of all hands to the pumps but, before too long, Rishi Sunak is going to need to find some money to bolster the economy.
After a decade and more of austerity, there is a limit to the amount of cutting that could be implemented.
Since I can’t see the economy booming in the near future, the only alternative would seem to be additional taxation.
The government has previously committed to freezing rates of income tax, national insurance contributions and VAT. Given these limitations, one other plausible option might be to introduce a wealth tax.
Who has a wealth tax?
A quick Google search shows that in Europe, Spain, Norway, Switzerland and Belgium already have wealth taxes. In addition, California is currently considering the option.
How might it work?
In principle, this is a really easy tax to implement. The starting point would be to levy a percentage, I would suggest 0.5% or 1%, of an individual’s worldwide wealth.
This is a tax, so we can’t leave it at that. There needs to be a threshold that might be say £500,000. I can already hear anguished Londoners observing that their principal private residences are worth far more than this.
That isn’t a problem. First, you would eliminate mortgages. After that, the government could ignore the value of someone’s home when calculating the threshold. For the avoidance of doubt, this would still form part of the wealth on which tax is charged.
How much would it raise?
Helpfully, Wikipedia has a list of countries that utilise various types of wealth tax together with the percentage of tax revenues that they yield. There appear to be only three countries around the world that manage to exceed around 0.5% of tax revenues from a wealth tax. This might lead to an obvious conclusion that such taxes are nice weapons for beating up the rich, but would mean a lot of hassle for very little benefit.
My guess is that the biggest issue around any attempt at introducing a wealth tax is going to surround valuation. While it is easy to see how much money a taxpayer has in the bank or an investment portfolio, what about other assets?
We all know that the council tax system is based on ludicrously inappropriate and outdated valuations and it seems hard to conceive annual valuations of properties, which would cost a great deal and lead to constant conflicts with HMRC.
Similarly, while it is easy enough to see how much Elon Musk’s shares in Tesla are worth on the basis that they are quoted on a stock exchange, how do you value the interest at the PwC partner has in a limited liability partnership?
I hate to say it but it is a sad fact of life that the ultra-rich do not pay their fair share of taxes. I know that some readers will point out that global corporations and billionaires abide by the rules and, in many cases, they undoubtedly do so. The problem is that they have enough influence to create those rules and ensure that their effective tax rates are ludicrously low.
You just know that if a wealth tax is implemented, the main burden would fall on the moderately wealthy. Ironically, this could include large numbers of accountants, but not the richest clients for whom they act.
Indeed, this might be the strongest justification for forgetting about the idea of a wealth tax before it is even fully conceived.
The accountancy angle
Ironically, as with most other taxes that hit the moderately well off, there are swings and roundabouts. While many accountants would be victims of any new wealth tax, the amount of additional income that we could generate by advising clients (who by definition could afford to pay healthy fees) on compliance and more valuably avoidance and minimisation, would almost certainly dwarf our tax bills.
The political angle
In case anybody has missed the point, we currently have a Conservative government in office, led by a group that would almost certainly be very badly hit should a wealth tax be introduced.
It is this kind of vested interest that ultimately holds sway in so many political decisions. If you add in the notion that many of those suffering most from this tax if it is applied evenly and fairly would also be donors to the aforementioned political party, and you can see why Mr Sunak might be persuaded to pursue other means of filling the yawning fiscal hole.
That does not mean we can completely ignore the concept of a wealth tax in the United Kingdom. Ignoring Scottish devolution for a moment, at some point in the future it is inevitable that there will be a change of ruling party.
Had Jeremy Corbyn continued to hold sway in the Labour Party, I doubt that he would ever have become Prime Minister. However, with a more plausible leadership and a government that is hardly covering itself in glory at the moment, albeit in the most difficult times imaginable, the idea of Sir Keir Starmer becoming Prime Minister is feasible.
When he does so, a wealth tax might just be back on the table.