Pressure is building on the leaders of Britain’s two biggest political parties to support higher taxes on wealth amid growing fears over the impact that a renewed austerity drive would have amid the cost of living crisis.
In an intervention which comes as the new prime minister, Rishi Sunak, considers options for filling a £35bn black hole in the public finances, a new coalition of 40 charities and campaign groups – including Oxfam, Save the Children and Christians Against Poverty – said Britain’s tax system was broken and those who paid the most should “pay their proper share”.
The Stop the Squeeze campaign warned deep cuts to public spending would only deepen poverty as soaring gas and electricity bills and rising cost of a weekly shop leave households facing the biggest collapse in their living standards for 60 years.
How would a wealth tax work?
The Wealth Tax Commission said a one-off levy would be best because it would not distort behaviour. This is because it would be based on the wealth of an individual at a set point in time, on assets they had already accumulated before it was launched.
It said payments could be made in instalments over five years, and should be made by any UK resident, including ‘non-doms’ and recent emigrants, with personal wealth above a set threshold.
A common concern is that some people hit by wealth taxes might be ‘asset rich but cash poor’ – typically because they might need to sell their home to pay the tax bill.
To avoid this, the commission said payments could be deferred or made in chunks over time, and that pensions-related wealth would be taxed out of a lump sum on retirement.
How would a person’s assets be valued?
Opponents of a wealth tax argue they can be unfair, easily avoided, or expensive for governments to administer because of difficulties in assessing a person’s net wealth.
For reasons of simplicity and fairness, the commission said all assets would need to be included – such as main homes and pension pots, as well as business and financial wealth. Any debts, such as mortgages, would be deducted.
Valuations could be determined by open market value – which would be easy for assets such as stocks, bonds, cash savings and pensions. The value of housing and land could be determined by the Valuation Office Agency – the division of HMRC responsible for calculating property values. However, the commission said householders would have the right to challenge a valuation if they believed it to be incorrect. Shares in private companies would also require professional valuation.
How many people would be affected?
The Wealth Tax Commission report does not set out specific recommendations for how exactly such a levy should work, but provided a range of options.
At individual thresholds of £500,000, £1m and £2m a wealth tax would respectively cover 17%, 6%, and 1% of the adult population.
At a threshold of £1m per household (assuming two individuals with £500,000 each) and a rate of 1% per year on wealth above the threshold, it said a one-off wealth tax would raise £260bn over five years after administration costs.
At a threshold of £4m per household (assuming two individuals with £2m each) and a rate of 1%, it would raise £80bn over five years.
A majority of voters who backed the Conservatives in 2019, many of them in “red wall” seats, would support wealthy individuals paying more in tax than they do now, according to polling of 2,000 adults by Opinium on behalf of the campaign.
Asked if they felt Britain’s current economic situation made spending cuts inevitable, as few as 21% of Tory voters at the last election agreed, with almost half believing that cuts would make the situation worse.
“We want politicians to Stop the Squeeze by urgently introducing policies which both address the immediate crisis and fix structural problems with our economy that have led us to this point,” the campaign group said in a statement.
The group, which includes the Economic Change Unit, the New Economics Foundation, and Tax Justice UK, said profits at some large corporations were going through the roof, while there had been a sharp rise in the number of UK billionaires.
The government is under pressure to avoid damaging spending cuts as the chancellor, Jeremy Hunt, attempts to repair the public finances after the damage caused by the Liz Truss mini-budget. The chancellor is said to have drawn up a menu of 104 options to cut public spending to get the public finances back onto a sustainable path, according to the financial news provider Bloomberg.
However, some economists believe other choices could be made. According to research by the campaign group Tax Justice UK, as much as £37bn could be raised to help pay for public services and to support energy bills through a string of taxes on wealth.
A separate report by the Institute for Public Policy Research and the Common Wealth thinktanks found a windfall tax on share buybacks – a type of investment payout used by companies listed on the stock market – could raise £4.8bn a year.
Should the government follow Joe Biden in adopting a 1% tax on share buy-backs, about £225m could be raised. While dividends are a well-known mechanism to hand back company profits to shareholders, buybacks work by companies repurchasing their own shares to increase their value. The practice benefits investors – but also company bosses whose bonuses depend on a rising share price.
Keir Starmer has recently rejected suggestions that Labour could impose a “wealth tax”, although he has said the party is looking at how to make the tax system fairer. The only policy it has announced so far is a promise to scrap the non-dom loophole, which allows wealthy UK residents to avoid tax on their worldwide income and capital gains.
Starmer called on Sunak to scrap non-dom status as prime minister’s questions on Wednesday, saying: “I don’t need to explain to the prime minister how non-dom status works – he already knows all about that.”
It emerged earlier this year that Sunak’s wife claimed the status. The prime minister said he would need to take “difficult decisions to restore economic stability”, and said more details would be revealed in the autumn statement, now delayed until 17 November.
But campaign groups are pushing for politicians to adopt tougher policies on wealth taxation as the cost of living crisis hits the poorest in society hardest.
Alfie Stiring, director of research and chief economist of the New Economics Foundation said: “The new PM’s plans to squeeze public spending to pay for tax cuts is not some new experiment – it has been the core political agenda for a decade.
“We know exactly how it ends: stagnating wages, threadbare income safety nets, cold and draughty homes and fragile public services.
“The country is desperate for a change. People want energy security, a strong NHS, good schools, and a decent income to afford life’s essentials. It begins with our new PM taking an easy choice: making the very richest contribute their fair share.”
