Will the Tories introduce a Wealth Tax?
Taxing the wealthy is not a new idea but has re-emerged since the COVID-19 pandemic, despite being totally at odds with traditional Tory policy.
The idea of a wealth tax, in response to the current health crisis and the deployment of billions to taxpayers during lockdown, does not have to be a permanent one. A one-off windfall tax could be the right ethical and financial decision to kick start the economy post pandemic and replenish the tax coffers, taxing current taxpayers who have benefited from government funding versus future taxpayers.
The alternative - of increasing taxes across the board - will mean future taxpayers will pay for the economic bailouts offered to existing taxpayers and businesses, which could be perceived as unfair, but certainly the way it has always been.
The Chancellor, Rishi Sunak, has a once in a lifetime opportunity to shake up the complex UK tax system, including introducing the option of a one off wealth tax to those who can afford it.
What could a wealth tax look like?
If a 2% levy was imposed on wealthy UK households’ net wealth, this could raise £300 billion of the £337 billion of the estimated deficit post pandemic. Job done you might think.
The levy could hit the wealthy people’s properties, financial assets, businesses, savings and even pensions.
The Chartered Institute of Taxation (CIOT)’s John Cullinane, tax policy director, thinks that this option has ‘a lot going for it’ and looks very similar to tax policies brought in post World War II.
How would a wealth tax work in practice?
The implementation of such a tax policy would require international co-operation to stop the wealthy moving assets and their domiciled status outwith the UK. If the international co-ordination around the health crisis is anything to go by, this may be difficult to enforce. If anything, anti-globalisation is underway as countries look to secure their people and borders to limit the effect of COVID-19.
A thought to the wealthy’s assets needs to be considered. It could very well be that the wealthiest households in the UK may be asset rich and cash poor, how easy would it be to extract tax revenue then? And if this can be overcome, how to value these assets?
The government will no doubt be mulling over these practical issues ahead of the Autumn Budget, where we expect to hear of Sunak’s plans to pull the UK out of recession and get the economy up and running again. The fact remains that the government will need money to replenish the tax coffers, and they need it sooner rather than later. Setting aside the expected bounce of the economy as business open up again and consumers and businesses start spending the government funding provided during the pandemic, this won’t be enough to reduce the UK’s mounting deficit.
A more feasible tax change, riding the current wave of love for the NHS since COVID-19 reached our shores, will likely be an increase to income tax and national insurance contributions. This will potentially be an easy sell to the public, who will be advised the tax rises will be needed to keep the NHS and the economy afloat post pandemic.
It remains to be seen over the coming months how well the economy will bounce back with lockdown measures easing and how far the Tory government will have to stray from traditional policies and think radically to avoid the worst recession in history.
