Speaking at the Chartered Institute of Taxation (CIOT) and Institute for Fiscal Studies (IFS) debate on the wealth tax at the Labour party conference, a panel of tax experts did not rule out the effectiveness of a wealth tax, but warned that it should be a one-off tax, otherwise there would be potential for widespread tax avoidance. However, the argument for such a tax would be easier for the public to accept if it is seen in the context of paying down debt after the pandemic.
Helen Miller, head of tax at the IFS said: ‘Growing our way out of debt is a more realistic way to pay off the debt. We are going to have higher taxes and there is going to have to be a mixture of cutting expenditure and raising taxes. Around three quarters of wealth in the UK is in housing and pensions. One thing that means is a very broad wealth tax which would affect most people or a wealth tax on assets. To many people it seems obvious to introduce a wealth tax. There are really big life cycles in wealth
‘The concerns of economists with a wealth tax is that it could just tax those people with savings. We need a more specific reason to tax wealth.
‘There is also the sheer practical difficulty of administering a wealth tax. We need to design a tax which matches our objectives. It could be better dealt with by taxing business owners and we need to look at improvements to capital gains tax.
‘A growing share of wealth is coming from inheritance; inheritance tax needs to be reformed, rather than introducing a new wealth tax.
‘The case for a one-off wealth tax is that it would be a very efficient way to raise tax and it would be difficult to avoid if it came in as a one-off tax.’
Arun Advani, assistant professor in the economics department at the University of Warwick, and a member of the Wealth Tax Commission, said: ‘A one-off wealth tax could raise a lot of money, but if it was an annual wealth tax it would need to be set at a relatively high level and there would be some avoidance.
‘It would be better to reform existing taxes like inheritance tax, capital gains tax, council tax, and tax on dividends. This could raise £8bn-£10bn instead of introducing the social care levy.’
A wealth tax would tax all assets, including homes, excluding any outstanding mortgage. However, there would be challenges to assess the wealth of such a large section of the population.
Advani added: ‘One in six of the population would be affected if the threshold was set at £500,000 and a 1% wealth tax could be paid over five years. This could raise £260bn. Another option would be to target the top 1% by setting the threshold at over £2m. This would raise £80bn over a five-year period and would focus on people who have substantial wealth.
‘An annual threshold of £10m wealth would raise £8bn-£9bn and 0.01% would pay if the rate was set at 1% but if you go higher there would be much more avoidance.’
While a wealth tax would clearly raise substantial revenue for the Treasury, there are questions of how the system would work.
Advani told delegates that ‘HMRC was in the process of creating a register of the value of all houses, it was kind of their own Zoopla – that was about 10 years ago when they were going to revalue houses for council tax. On a wealth tax the hardest bit would be to value small businesses and if it was introduced, you would need to see if the government would some of the costs of valuations of the businesses. It is already hard enough to value small businesses.’
Angela Eagle MP, and member of the Treasury Committee, told the audience that the Treasury Committee had not ruled out the introduction of a wealth tax, despite its majority of Conservative members.
‘Much of the analysis points at a one-off tax being more easily introduceable than a longer term tax,’ said Eagle. ‘The tax base is at enormous risk from avoidance and evasion, and the shift of sales off the high street is increasing distortion between different employment types and taxes. The national insurance rise only made that worse.
‘Taxes are levied for different reasons, are you doing it to raise revenue, or to create a more equal society? Because of the effects of covid and structural changes in our economic life, the tax base is eroding and it needs to be shored up. You cannot retool in infrastructure terms – roads, broadband, the move to net zero – this all requires a massive amount of investment.’
There was strong call for reform of the tax system, which is overly complex and riddled with tax reliefs which are used to avoid tax, albeit within the existing framework. Eagle agreed with other members of the panel that ‘it is clear that income tax and capital gains tax need to be reformed’.
‘We ought to start thinking the unthinkable in order to start balancing some of the books and seeing whether making a more equal society is achievable. The era of lower taxes is over,’ Eagle added.
