Britain is broke, for the second time in 12 years our economy has hit the buffers but this time the noises coming out of Government suggest that it is the wealthy who will pay to fix it. This would be in contrast to the austerity policies of the coalition, Cameron and May governments.
A recent You Gov poll found 61 per cent of the British public supported a wealth tax on individuals with assets worth more than £750,000, excluding pensions and the value of their main home.
Former Head of the Civil Service Gus O’Donnell said yesterday “there may be more of an appetite for a wealth tax than you might have thought”.
The goals of a wealth tax
The IFS start with the fact that
and that ….
Wealth is increasingly associated with being old
and concentrated in housing and pensions
Many people may have wealth tied up in assets but little income.
There are very few countries in Europe which still have meaningful wealth taxes and this reflect the historical fact that wealth taxes tend to be introduced after a major crisis. There have been few major crisis of late and the last one was dealt with through cuts in public services and increases in taxes on spending which hurt the poor most.
At an abstract level, a wealth tax seems to be aligned with the goal of a fairer tax system, but clearly it is a tax that will present practical difficulties to introduce.
Reasons we don’t have a wealth tax (on the living)
A large part of the IFS presentation focused on the practicalities of introducing and maintaining the taxes. In particular issues of avoidance (trusts, emigration, borrowing), valuation and liquidity.
But despite the issues surrounding a wealth tax, the IFS pointed to recent public opinion polls that suggest that we are ready to see a wealth tax in Britain for the first time (the land value tax introduced in 1909 was repealed ten years later when it was found that it was costing more to administer than it collected). The last time the UK looked at a wealth tax was under Harold Wilson’s Government in 1974.
The IFS will be looking at a final report on whether Britain should have a wealth tax later in the year.
Gus O Donnell’s arguments for considering the hard problem are
- That with Covid-19 we have a “clear burning platform” for change
- We have a Government with a big majority
- There is a desire withing Government for genuine reform
- This can only be done at a time (like now) when we have a popular Treasury
While Covid’s health impact has been on the elderly and males, the economic impact is likely to be on the young and females. In terms of “least bad options” , tax increases and especially taxes that don’t hurt those impacted, appear to score well.
A tax on the living or a tax on the dead?
The meeting concluded by thinking about inheritance tax, a tax that has fallen into disrepute,
O’Donnell pointed out that the council tax which was brought in to replace the hated poll tax started well and has also fallen into disrepute.
According to O’Donnell, introducing a new tax (or a package of new taxes) would be easier than to reform a broken tax (where the losers would shout louder than the winners).
Whatever the solution that the Treasury choose, it is clear that it’s going to be tough. In a modern way of living, the new taxes we pay should respect the way we want to live our lives. Right now our tax system doesn’t look like it pays that respect.
Now is the time for us to talk about the way we fund our way out of the pandemic and this was a good start to that debate.