CLA Tax Adviser Louise Speke considers whether the suggestion of a UK wealth tax is a realistic prospect
We all recognise the significant strain Covid-19 has placed on the economy, with government spending and borrowing increasing substantially as the government seeks to support businesses and families.
The government confirmed in the recent spending review ‘blue book’ that: “Over time, and once the economic recovery is secured, the government will take the necessary steps to ensure the public finances are on a sustainable path." Many commentators are suggesting that taxes will need to rise to achieve this, but even the Labour party is saying that now is not the time. Whilst it is right for the government to explore several different revenue-raising options in due course, it should remember that no country ever taxed its way to prosperity.
Members may have seen several press stories that followed the publication of a report on the possibility of a UK wealth tax by a Wealth Commission. This was not a government-led project but primarily an academic exercise to examine the case for and against a wealth tax. However, it is worth considering whether a wealth tax is a realistic prospect.
The introduction of a new tax needs not only political will but also public support. This is illustrated by the adverse public response to the introduction of the community charge (the poll tax), which was subsequently abandoned. Even attempts to change a tax can be abandoned due to public outcry. In this case, public support for a wealth tax will depend on issues such as the design of the tax and who is likely to pay. Polls seeking views on a wealth tax showed high levels of public support if the main home and pensions were excluded. However, the recommendation for a one-off tax on the ownership of wealth, which the Wealth Commission has dubbed the ‘Covid recovery tax’, is that it should have a broad base. They recommend that the tax should be on the value of an individual’s home, pension fund, and business assets, with no reliefs or exemptions. With an illustrative rate in the report of 5%, with a suggestion that this is payable over five years, this would be a hefty and unaffordable tax bill for many.
Commentary from the public on various media reports seems to indicate that this one-off tax would not have widespread public support. It would also appear that the Treasury is pouring cold water on the idea already, and are reported as responding that it had already taken steps to ensure the wealthy pay their fair share of tax.
Our members are the people who do the most to feed the nation, develop environmental schemes or diversification projects to create jobs for local people, and we continue to make the case that the Treasury must look on these businesses favourably in any change that lies ahead. Policies designed to create sustainable, long-term economic growth should be the Treasury’s number one priority.