A leading panel of tax experts, academics and policymakers have recommended a “one-off wealth tax” as a way for the UK to repair the damage wrought by the Covid-19 pandemic on the economy and public finances.
The Wealth Tax Commission, a panel of experts from LSE and the University of Warwick, found that such a measure would raise about a quarter of a trillion pounds over five years, and said it should be considered rather than levying increased income tax or VAT.
A wealth tax would see individuals taxed only once based on the net wealth they owned at the time of reckoning, the commission said, and could raise up to £260bn if levied at 5 per cent on those with assets worth £500,000 or more. The commission’s report found that an alternative threshold such as £2m or above would raise a third of that, about £80bn in total.
At thresholds of £500,000 and £2m per person, a wealth tax would respectively cover 16 per cent and 1 per cent of the adult population in the UK.
The tax would apply to a person’s total wealth including their home and any other properties, pension pots, business holdings and bank accounts.
The commission proposed that the one-off wealth tax should be levied with a provision allowing individuals to pay the tax in instalments over a number of subsequent years at a rate of 1 per cent.
“This would reduce the cost in a single year, but the amount of tax they pay would be based on their wealth on the initial assessment date,” said the experts in their report.
The commission believes that it would be economically efficient, when compared to increased income tax for example, because it would be based on wealth at one point in time. Greater income tax on employment can reduce the incentives to work, the report argues, while capital taxes can staunch investment.
To address concerns that a new wealth tax could hurt people who are “asset rich but cash poor” and would be forced to sell their home to pay the tax bill, the commission said the one-off levy could be spread out over five years and people could appeal for more time to pay.
The idea of wealth tax was first suggested by Cambridge economist Nicholas Kaldor in the aftermath of the Second World War, but it was first imposed in 1981 when then-chancellor Geoffrey Howe applied a one-off tax of 2.5 per cent of the banks’ non-interest-bearing current account deposits.
Prime minister Margaret Thatcher later justified the tax on the basis that the “banks had made their large profits as a result of our policy of high-interest rates rather than because of increased efficiency or better service to the customer.”
One-off taxes have been used after major crises in other countries, including France, Germany and Japan after the Second World War. More recently, Ireland levied a one-time wealth tax after the 2008 financial crisis.
In fact, the Labour Party’s top leader Keir Starmer in July said that the government should “look at the idea of a wealth tax”. The party has since backtracked on the idea, arguing that there should not be an increase in taxes while the economy is weak.
However, a YouGov poll in May found that 61 per cent of people would approve of a wealth tax on those with assets of more than £750,000.
