Wealth Tax Evidence Papers
A group calling themselves the 'Wealth Tax Commission' have published a series of evidence papers with their preliminary research on the possible scope and feasibility of a wealth tax for the UK.
This is not a government-inspired project; it is led by a team of academics at the LSE, Warwick and a tax barrister, Emma Chamberlain OBE. The aim is not to advocate a wealth tax but to consider the case for and against it and explore the possible design and assess the difficulties to be overcome. They intend to inform debate with thorough, evidence-based research in advance of any suggestion that such a tax is introduced.
This comes at a time of growing concern about the increase and concentration of wealth giving rise to inequality in the UK, an issue exacerbated by the recent pandemic. With debt continuing to rise as the government struggles to tackle the growing costs brought on by COVID-19, many are inevitably wondering how the government plans to rebuild the economy and public finances in the wake of such unprecedented public spending. The economic fall-out from coronavirus may act as a catalyst for exploring whether a wealth tax could be part of the solution.
What do the papers consider?
The 12 evidence papers present extensive research on a variety of relevant aspects, drawing out facts and figures as well as attitudes and opinion. They consider whether taxing wealth is ‘fair’ and look at regional and generational differences in wealth concentration. Although polls suggest there is public support for taxing wealth (on the basis it would not affect most people), this was found to be contingent upon excluding cash savings, pensions and the main home. A key aspect involves defining the tax base and scope of a wealth tax, as well as any threshold, rate and possible exemptions. A banded approach is an option. There is talk of a threshold of somewhere between £500,000 and £2,000,000 and a rate set at somewhere between 1% and 3%.
Ultimately, the benefits and or shortcomings of a wealth tax will depend on the policy design. Several options are presented. It could either be an annual tax or a one-off event. The initial report is clear that any wealth tax would be net of debt but it could be levied either on individuals or households, to avoid fragmentation.
The difficulties associated with a wealth tax are examined, in particular valuation and data deficiencies; liquidity issues for the asset rich, cash poor; integration with existing taxes; application to trusts and the internationally mobile; and collection, avoidance and enforcement issues.
The papers also look at taxing wealth from historical, political and international perspectives. The UK already taxes transfers of wealth and returns on wealth but has never taxed ownership of wealth. When the idea was considered in the 1970s, the proposals were abandoned. Other countries have introduced a wealth tax, but many have failed. The international examples demonstrate what is, and is not, successful which the UK could learn from when contemplating how a UK wealth tax might work.
The initial report and the evidence papers are far from conclusive. Though the pandemic may have highlighted the need to tax wealth more, a wealth tax is not necessarily the best way to do so. The benefits of a wealth tax are made apparent across the papers but so too are the flaws. A wealth tax may penalise saving and could result in behavioural changes that will adversely affect the efficiency of the economy.
The Commission will produce a final report on 9 December 2020. This will seek to answer the question of whether a wealth tax is indeed desirable and/or feasible and if so, how it might be designed. Any proposals are likely to provoke fervent debate and the government response remains to be seen, but there is a consensus that any new tax on wealth is likely to be extremely challenging to implement.