Against the backdrop of Covid-19 and record levels of government debt to cushion the impact of the virus on jobs and livelihoods, the question of whether a wealth tax could help fill the hole in the public finances is being much debated at present.
The idea of a wealth tax is not new. It was last considered by a UK government in the mid-1970s but has been on and off the political agenda since then. Spain, Switzerland and Norway all have an annual wealth tax of some form, as did France up until 2017.
What is a "wealth tax"? Put very broadly, a tax on the ownership of wealth – either an annual levy, or a one-off emergency measure. Beyond that, the design of such a tax is not straightforward and introducing one will require decisions to be made on assets within scope, the starting threshold, eligibility criteria in terms of residence, domicile or citizenship, as well as disclosure obligations.
The introduction of such a tax is a huge project and politically sensitive, but would undeniably raise much needed revenue. It has been brought into the limelight most recently by the launch of the Wealth Tax Project, an independent review promoted by the Institute of Fiscal Studies and Lord O'Donnell, bringing together leading economists, lawyers and accountants to study all aspects. The first stage of their report is due in October 2020, with a final report to follow in December 2020. The review has not been commissioned by the government, but Rishi Sunak will surely be tracking its progress. Whether its findings help shape government policy remains to be seen.
Likelihood of a wealth tax
The need to raise revenue is the single-most likely indication that a wealth tax might be introduced. Overall public debt is at a record level of £1.95 trillion, equating to 100.9 percent GDP, and surely cannot be sustained without supplementing borrowing with revenue from tax. The Wealth Tax Project has predicted that a wealth tax could bring in hundreds of billions of pounds in revenue, and being an immediately collected tax, as opposed to one (like inheritance and capital gains tax) triggered by an event, could neatly help fill the hole in the public finances.
When Chancellor Rishi Sunak spoke after his Summer Statement last week, he failed to rule out future tax increases, but he has not openly given his support to a wealth tax. It is likely to be unfavourable with traditional Conservative voters and has the potential to cause divisions within the party which, at a time when the party is recovering from the divisive effect of Brexit, may not be a route that the government will want to go down. Indications are that the Labour party would be supportive.
On 14 July 2020...