The introduction of a one-off ‘wealth tax’ on the most prosperous households in the country is preferable to hiking taxes for the masses, a new in-depth report has claimed as economic turmoil mounts in the UK.
The national debt has spiralled this year as the Government spent more than £280billion tackling the virus and its financial fallout, with Chancellor Rishi Sunak claiming the ‘economic emergency’ has only just begun. Although growth figures today indicated a stronger performance by the the economy in October than had been expected.
When it comes to clawing back the big splurge, a report from the Wealth Tax Commission suggests that the Government should target only the wealthiest, rather than increase income tax or VAT, which would negatively affect millions of people.
Decision time: Rishi Sunak has to raise cash fast to pay for the economic fallout from Covid-19
The one-off tax it proposes would affect around 10million people with £500,000 or more worth of assets. The Commission said the one-off wealth tax would be equivalent to raising VAT by 6p or the basic rate of income tax by 9p for the same period.
The tax would be levied all assets such as main homes and pension pots, as well as business and financial wealth, but deduct any debts like mortgages. It would be paid by any UK resident, including those classified as ‘non doms’, who are UK residents but live abroad, often for tax reasons.
Dr Arun Advani, assistant professor at the University of Warwick, who is one of three commissioners behind the report, said: ‘We’re often told that the only way to raise serious tax revenue is from income tax, national insurance contributions, or VAT.
‘This simply isn’t the case, so it is a political choice where to get the money from, if and when there are tax rises.’
The Commission also proposed an alternative strategy whereby a threshold of £4million would be set per household, assuming it contained two people with £2million each, taxed at a rate of 1 per cent per year on wealth above the threshold.
Under this separate proposal, the Commission thinks the Treasury could raise £80billion over five years, after administration costs.
Treasury response: ‘Wealthy pay their fair share’
In response to the Commission’s proposals, the Treasury said it had already taken steps to ensure the wealthiest in society pay their fair share of tax.
The Treasury said: ‘We’re committed to a fair and efficient tax system in which those with the most contribute the most.
‘Our progressive tax system means the top 1% of income taxpayers are projected to pay over 29% of all income tax, and the top 5% over 50% of all income tax in 2019-20.
‘We’ve also taken steps to ensure the wealthy pay their fair share, reforming the taxation of dividends, pensions and business disposals to make the tax system fairer and more sustainable.’
Wealth tax: The Commission said the one-off wealth tax would be equivalent to raising VAT by 6p or the basic rate of income tax by 9p
Could a wealth tax like this push thousands into debt?
Some experts are concerned that such a move could push thousands of well-off but not excessively wealthy people into debt and financial difficulty.
Nimesh Shah, chief executive of tax and advisory firm Blick Rothenberg, said: ‘When wealth taxes have been discussed in the past, it was expected that certain assets such as the main home and pensions would be excluded, but the Wealth Tax Commission argues that this should not be the case.’
He added: ‘This could push thousands of households who may be asset but not cash rich, into debt. A family owning a detached house in Southern England with modest pension and ISA savings could easily be caught.’
But, Dr Andy Summers, associate professor at the London School of Economics said he still thinks a one-off wealth tax would raise ‘significant’ revenue for the Government, while being fairer and more efficient than alternatives like hiking income tax for all.
Meanwhile, Rebecca Gowland from Oxfam said: ‘It is morally repugnant to allow the poorest people to continue to pay the price for the crisis, when it is clear that a fair tax on the richest could make such a difference.’
Some experts also think the taxman could end up having a tough time implementing a ‘wealth tax’ on a practical level.
Rachael Griffin, tax and financial planning expert at Quilter, said: ‘It is difficult, although not entirely impossible, to imagine such a radical proposal being put forward by the government. However, if the Chancellor were persuaded of the merits of a wealth tax, he might be more likely to propose a version with a higher threshold in order not to penalise so many households, many of whom may feel comfortable, but far from wealthy.
‘The difficulty is in the practical implementation of such a tax. The proposals recommend a levy on anyone with assets over £500,000, or £1m for a couple. That means that for a huge number of moderately affluent people, the valuation on their home may or may not mean they’re affected. Getting so many properties valued fairly and accurately would be a huge challenge.’
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