Another wealth tax idea

Three lobby groups have joined together to propose a new wealth tax.

Two and a half years ago, the final report of the Wealth Tax Commission (WTC) was published. Although its authors avoided specific recommendations, the report clearly favoured a one-off tax of 5% of wealth above £500,000, levied at the rate of 1% a year and raising a total of £260bn over five years. The report was prompted by the cost of the pandemic and the projected level of tax raised was targeted to match the expected Government expenditure. At the time, Public Sector Net Debt (PSND) was £2,158.9bn (99.3% of GDP). Although the proposals garnered considerable media attention at the time, they failed to gain any political traction.

By April 2023, the corresponding debt figures were £2,536.9bn (99.2% of GDP). The £378bn jump in the cash figure is not mirrored in the GDP percentage because, in 2020, GDP had contracted sharply due to the impact of COVID on the economy.

The combination of continued high debt and the recent publication of the Sunday Times Rich List has inspired three groups, Tax Justice UK, the Economic Change Unit and the New Economics Foundation to resurrect the idea of a wealth tax. The trio’s version is different from the WTC proposals:

• The tax would be an annual tax, not a one-off;
• It would be levied at the rate of 2%; and
• It would apply only to wealth above £10m.

Tax Justice estimate that such a structure could raise £22bn a year, which is higher than the WTC’s 2020 estimate of about £17bn for a similar format. Earlier in May 2023, Tax Justice published the results of a You Gov poll that showed 74% public support for a 2% tax on wealth above £10m. Such a result is, if anything, surprisingly low – few people take persuading to favour a tax that could benefit them but would not affect their pockets. The WTC 2020 calculations showed, at a £10m threshold, only 22,000 people would be within the scope of the tax – far more than the 350 families and individuals in the Rich List.

The new proposals may have grabbed a few headlines, but it seems unlikely they will have any greater longevity than those of the WTC. Ironically, the WTC gave good reasons for favouring a one-off tax rather than an annual wealth tax:

‘Unlike a one-off wealth tax, an annual wealth tax could also face significant behavioural responses. At very high levels of wealth, the extent of these responses remains uncertain. Some responses could be mitigated by careful design, but others would be more difficult to resolve.’

In a recent interview with the Financial Times, Rachel Reeves, the Shadow Chancellor, remarked that she had no plans for ‘a special FT reader tax’ nor any new measures to target the wealthy beyond those previously announced. However, were a wealth tax on a secret Labour agenda it would be folly for the party to say so because:

• It would be a gift for the Conservatives; and
• As the WTC said in its report, ‘Prior pitch-rolling would result in individuals seeking to plan their affairs ahead of the assessment date i.e. ‘forestalling’.
   

This information is correct as at 14/06/2023. 

This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions. The Financial Conduct Authority (FCA) does not regulate estate planning, tax or trust advice.