The government could raise £260bn to help pay for the costs of the Covid-19 crisis by implementing a one-off wealth tax, according to the findings of a research team of over fifty international experts on tax policy and practice
In what they say is the first consideration of such an option for half a century, academics from the London School of Economics and Warwick University, funded by the Economic and Social Research Council, have been investigating whether a UK wealth tax is desirable and deliverable, with input from think-tanks, the OECD, industry practitioners, lawyers and policymakers, such as the former head of HMRC.
Their report, published by the Wealth Tax Commission, recommends the tax should be paid by any UK resident (including ‘non-doms’ and recent emigrants) with personal wealth above a set threshold.
It would be calculated based on all assets such as main homes and pension pots, as well as business and financial wealth, but minus any debts such as mortgages, and be payable in instalments over five years.
The tax should be levied on an individual rather than on a household basis, although there could be provision to allow couples to choose to be jointly assessed. Assets should be valued based on their open market value, and payments could be deferred by those who had liquidity constraints, for example if most of their wealth was tied up in property.
The report argues this approach would be fair, since those with the most wealth have the ‘broadest shoulders’ to afford an additional contribution to society in times of crisis.
Unlike taxes on work or spending, a one-off wealth tax would not discourage economic activity. The administrative costs would also be small as a proportion of the revenue raised.
It would also be very difficult to avoid by emigrating or moving money offshore.
The report does not say when the tax should be implemented or recommend specific tax rates or thresholds but instead provides a range of options.
For example, at a threshold of £1m per household (assuming two individuals with £500,000 each) and a rate of 1% per year on wealth above the threshold, a one-off wealth tax would raise £260bn over five years after administration costs.
This is equivalent to raising VAT by 6p or the basic rate of income tax by 9p for the same period.
Alternatively, at a threshold of £4m per household (assuming two individuals with £2m each) and a rate of 1% per year on wealth above the threshold, a one-off wealth tax would raise £80bn over five years after administration costs.
At individual thresholds of £500,000, £1m and £2m, a wealth tax would respectively cover 17%, 6%, and 1% of the adult population.
The report points out that one-off taxes have been used after major crises before, including in France, Germany and Japan after WWI and in Ireland after the global financial crisis.
Dr Arun Advani, assistant professor at the University of Warwick and one of the report’s authors, 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.’
Emma Chamberlain, barrister at Pump Court Tax Chambers, said: ‘People sometimes say the super-rich won’t pay. My experience is they are happy to pay, as long as the tax is simple to operate, affordable and they don’t feel they aren’t being singled out with penal rates. The trouble is that our current way of taxing the wealthy is far too complicated leading to avoidance and resentment. We need a better way forward.’
James Ward, head of the private client team at Kingsley Napley LLP, said: ‘A direct tax simply on existing wealth has never existed in the UK although stamp duty, inheritance tax and other taxes are, of course, effectively “wealth” taxes. The 1% above £500k as a one-off tax is an interesting concept which would certainly raise a lot of money and lessen the need to significantly reform current taxes.
‘However, a government would have to be exceptionally brave politically to consider introducing such a tax - even on the back of the unprecedented and costly Coronavirus situation which we all understand needs to be paid for. There would need to be alternative method of payment options for asset rich, cash poor individuals and careful consideration would need to be given as to how mortgages come into play. Someone may have a £1m house, for example, but have debt of over £500,000 and therefore be under the threshold.
‘What else contributes to the wealth level should arguably also be taken into account - cash, investments, overseas property, cars, paintings, wine etc - and as a result some creative avoidance methods could emerge.’
The Wealth Tax Commission has launched an interactive website that allows members of the public to model their own revenue-raising options, and see how much they would pay under different options.