Prepare for a wealth tax. That, at any rate, is the conclusion you might reach after an Ipsos Mori poll this week suggested that a wealth tax on assets over £500,000 was the public’s favourite way of raising revenue to start trying to fill the enormous deficit left behind by the Covid-19 lockdown. It ought to be noted, however, that this was a little down on polls earlier in the year. In July, an Opinium poll suggested that 56 per cent would favour a wealth tax, while a YouGov poll from May found that 61 per cent would like a wealth tax. The latter poll had suggested a higher threshold – £750,000 excluding main homes and pensions, which might go some way to explaining its higher popularity.
The public, rung up by a pollster, don’t have to contend with the practical issues of a wealth tax. If they did, they might have a different view. Indeed, an honest follow-up question might be: would you still be in favour of a wealth tax even if it cost more to collect than it raised in revenue? Leave aside the issue of fairness, and of whether it would persuade wealthy entrepreneurs to leave the country, the fundamental problem with a wealth tax is the sheer cost of constantly valuing everyone’s assets. It is easy enough, perhaps, to value a share portfolio. Yet every government since John Major’s in 1991 has shied away from revaluing every property for council tax purposes. What about paintings, ornaments, jewellery – do we send a state valuer to sniff around everyone’s house every 12 months to see what of value lies within? It would be like having our worldly wealth assessed for probate, but every year of our lives.
It is possible to reduce the cost of collecting a wealth tax by only applying it to certain assets. But then how do you prevent wealth flowing out of assets which are taxed into those which are not? Tax properties but not paintings and classic cars and you are likely to find money flooding in the direction of the latter.
I wonder how many of the people who backed the idea of a wealth tax in assets over £500,000 really know the value of their own pension fund? If you save through a self-invested pension plan (SIPP) you might know how much your pension is worth, but if you have, say, a public sector pension you are likely to have no idea of its capital value – and you might be surprised if you did. Again, it is possible to exclude pensions from a wealth tax, but then how do you prevent other wealth flooding into pensions?
Were Britain to introduce a wealth tax now it would be going in the opposite direction to some other countries, which have quietly abandoned their wealth taxes. Francis Hollande introduced one for France, yet it was dropped by Emmanuel Macron two years ago.
No doubt the Chancellor will be looking for additional forms of revenue, if not next year then the year after. It is improbable that the government will attempt to close the yawning deficit – likely to be in excess of £300 billion this year – with spending cuts alone, or indeed with any spending cuts at all. It might make sense to levy additional bands of council tax on homes at the upper end, and possibly to remove, partially or completely, the main residence exemption for capital gains tax. But a comprehensive wealth tax will surely be a non-starer, however popular it may seem to be with the public.