A Wealth Tax Commission was set up in spring 2020 to “provide in-depth analysis” of a UK wealth tax proposal. Their final report was published on 9th December and makes for interesting reading.
Who are the Wealth Tax Commission?
The Wealth Tax Commission are a group of academics, policymakers and tax experts. They were formed specifically to look at the idea of a wealth tax in the UK.
Proposal for introducing a wealth tax
The proposal suggests a one-off wealth tax of 1% on all personal wealth over £500,000 for five years. It applies to “net wealth”, which is the total value of all assets, minus their debts. A mortgage is considered a debt, so the value of a mortgaged property isn’t included in the definition.
It is estimated that this will raised £260 billion pounds over the five years.
So, a couple would need to have joint net wealth of £1million before the wealth tax would be applied.
Can the same amount of money be raised in a different way?
Yes, the researchers calculated that £250billion can be raised over five years in the following ways:
- Increase the basic rate of income tax by 9p, taking it from 20p to 29p
- Increase all VAT rates by 6p, meaning the main VAT rate would go up from 20p to 26p
- A rise of 6p on all income tax rates
- Put VAT up by 4p and combine this with a 5p Corporation tax rise
All of these options are potential dampeners to the wider economy. An increase on income tax or National Insurance Contributions mean that people have less money in their pockets to spend. Capital taxes reduce investment and higher Corporation taxes discourage businesses to increase their UK taxable profits.
And, of course, they all have a negative political consequence. More of the electorate would be affected by increases in these taxes than a one-off wealth tax. What would have a bigger impact on you?
Have ‘one-off’ taxes happened in the past?
Yes, one–off taxes have been used in the UK and in other countries as a response to particular crises. Tony Blair’s government introduced a one-off tax on privatised utilities. Prior to that, Prime Minister Thatcher administered a one-off tax on banks.
France, Germany and Japan all introduced a one-off tax at the end of World War Two. Ireland implemented the same after the global financial crisis. And just this month Argentina has created an additional tax on their wealthiest citizens in order to cope with the demands of the COVID-19 crisis.
What do you think?
The conclusion of this report is that a one-off wealth tax would be the fairest way to boost the country’s coffers, “sharing the burden of paying for the crisis across those with the broadest shoulders.”
They feel that it makes the most financial sense, with the least amount of administrations for the most amount of revenue and with minimal impact on spending behaviour – which helps the economy recover quicker.
It’s up to the government to decide how to pay for the cost of the pandemic, and this is only one of many options. The way this research sees it, the decision “is political, not mathematical.” As we all know, many of the government’s supporters will fall into the category that would have to pay the wealth tax in this proposal. We’ll have to wait and see what Chancellor Sunak decides.