Matt Kilcoyne is Head Of Communications at the Adam Smith Institute.
There really is nothing as worthless as the repetitive debate about wealth taxes. No matter the issue at hand, the answer is always the same from the same old left-wing activists: impose a tax on wealth. This year’s offering comes from the Wealth Tax Commission — the clue about what conclusion they came to is in the name.
A wealth tax is designed to be levied on all held assets (of all forms) in a one-time deal without any notice to bring in a big boost to the state’s coffers at someone else’s expense. The particular one proposed demands large liabilities be made on taxpayers without warning across all asset classes and investments to the tune of one per cent of total wealth per annum for five years. It amounts to little more than petty theft by installments.
The proponents this time say that the pandemic is the perfect time for this kind of one-off money grabbing exercise, because the state has spent so much money. So far, you can follow the logic. We need to get the finances back onto sure footing, it runs: so we cannot survive a deficit of 20 per cent per year without serious recourse to increased taxation, decreased government spending, or a hefty increase in inflation. You can guess which the Wealth Tax Commission would like to do first.
Yet we’re not facing that future or even really that choice at all. One of the better arguments in favour of deficit-led spending to prop up businesses throughout this pandemic, was that it was causing a big one-time shock like a natural disaster, and that credit was a good resource to call upon.
Yes, the deficit ballooned but the worry about our future prosperity may be misplaced. The summer’s opening up showed the public’s desire to get back to normal. Once jabbed in the arm by a vaccine we should expect the same.
This means that instead of a long Covid winter stalking the land, or real interest rates rising beyond the growth rate in the near future, it is, as Julian Jessop wrote for the Institute of Economic Affairs, “more likely that interest rates will remain relatively low and that a rebound in growth will help to stabilise the debt-to-GDP ratio at a sustainable level.” Intervention during this pandemic was to stop widespread economic scarring and adaptation to non-normal trading conditions – that benefit is diffuse and ongoing, so the cost can be the same.
The UK has a hard-won reputation for paying its debts, and so the credit options are more diverse for one-off shocks like this. Argentina, which voted to implement a wealth tax to finance its pandemic response, has fewer choices, thanks to its government’s regular inability and unwillingness to meet the debts it has built up time after time. There the tax will be ruinous, but it is a last resort due to past recklessness. Your word is your bond, and bonds are worth as much as your word.
People have felt most aggrieved in the past year when they have felt that, through no fault of their own, their lives and livelihoods have been at threat, and everything looks like it might be lost. What the Wealth Tax Commission is proposing is to double down on this bad feeling to avoid an increase in the long-run debt position of the Government, with a hugely concentated cost on those who have done no ill to earn it.
It is a hefty cost, too. Over eight million people would be hit to a collective tune of £250 billion by a wealth tax of one per cent per year for five years at a threshold of £500,000. Including pension pots, shares, and home ownership, we’re talking about a lot of regular people, not the uber-rich. Regular ConHome readers will know well the ire that another wealth tax, inheritance tax, creates among the voting public.
We should be aware too, of the dishonesty of the proposal being presented as a one-off. The fact it’s proposed to take place across five years reveals the true intent of its proposers to make it become permanent. There’s form for that, too, (disastrously) overseas.
In Spain, the wealth tax (or Patrimonio) has been in place since 1977, when it was brought in as a one-off (¡qué sorpresa!). Since then a whole raft of exemptions have been built up, including deductions on the value of the main family home, business assets, pension rights, intellectual property rights, and family companies. Each of these creates a distortion effect that has made a dog’s dinner of the tax system — the report itself mentions this as a risk, but as it’s only selling this (dishonestly) as a one-off it feels it needn’t be addressed.
The Wealth Tax Commission’s own report argues that “delivering a one-off wealth tax from inception through to full operation would be a major undertaking. Although one can point to entirely new taxes introduced within the recent past, there are none on this scale.”
It goes on to say that something equally as broad in the form of national insurance had its institutional beginnings in 1943 before being implemented in 1947. If the best guide they can give is a tax that took four years to bring in, one first has to question how long they think this pandemic is due to last after vaccination scenes hit our screens yesterday, and then how on earth the Treasury would keep the plans a secret.
For secret the plans would have to be. For as soon as you know your property is going to be grabbed, it is entirely sensible to try and get your money out. If the economy is in the doldrums, the last thing we need is money flowing out of the country.
After a year limiting the private sector’s abilities, the vaccine’s rollout provides the perfect time to set them free and for Boris Johnson to win the peace by lowering capital gains tax, making it easier to build a profit-making business here, to engage with trade partners the world over, to employ top talent, and cheaper to transact at home and abroad. A wealth tax, delivered by stealth, disproportionate to the problem, and hitting our country at its most crucial time for recovery would not lead to a wealthy nation.
This Government is keen on recycling, but it shouldn’t pay any heed to this recycled garbage. In fact, the idea of a wealth tax so ruinous deserves to go into the trash once and for all.