On the subject of a wealth tax

A committee has just recommended a wealth tax:

Family homes and pension pots would be clobbered by a proposed £260bn one-off wealth levy to pay for coronavirus, in what would amount to one of the biggest tax grabs of all time.

All British residents with personal wealth of more than £500,000 would pay a one-time 1pc tax spread over five years, under proposals from the Wealth Tax Commission, an influential group of think tanks and academics. It would hit close to one fifth of the adult population – almost 10 million people.

It’s worth noting that the modal family hit by this will be a public sector worker living in their own home in the SE of England. Because they are suggesting the taxation of housing equity and pensions. Public sector pensions, being defined benefits ones often enough, have significant value. So, clearly, do houses in the SE and London. Therefore that’s who will pay this tax. Two doctors living in Pinner might be the archetype of who will pay this tax.

It’s possible to think that that’s not quite the plutocratic running dogs that most normally think of when they consider who is wealthy.

It’s also true that wealth taxes are contraindicated under any system of sensible taxation, as Sir James Mirrlees pointed out - and gained the Nobel for.

This is a suggestion to the Treasury Committee and one of us gave evidence in the session specifically considering the idea:

I am unconvinced by this argument that we need to be raising taxes. Yes, we have just spent an enormous amount of money on dealing with the coronavirus. Depending on how we unwind or do not unwind QE, we may or may not need more tax revenue in the future. Once the vaccine is around and the economy has returned to normal, I do not see the case for higher taxation and more Government spending because the problem will be behind us. I am not buying that first stage of the argument here that we need to have more taxes.

The other thing that has just struck me is that people are talking about retrospective one-off wealth taxes. One-off wealth taxes are not all that good an idea simply because, once it has happened once, absolutely nobody is ever going to believe that it will not be done again. That is just the way people react to Government doing things. Currently, if the Chancellor stands up and says, “I am raising income tax,” then everybody has a choice to say they are going to go to work or they are not going to go to work, that they agree to pay that tax or they do not agree to pay that tax.

A retroactive tax is an appalling idea. It is akin to theft. Roy Jenkins did this in the 1960s. He retroactively imposed a 130% tax at the top end of capital incomes on the previous tax year that was already closed. That is just appalling behaviour. However much Government need the money, that is just not what we should be doing. Tax, just like any other form of law, should be, “It starts today. If you do not agree with it, you can change your behaviour in the future to avoid it and not do the activity, whatever.”

I regard taxing people today on what they did last year, changing the law on them, as an appalling breach of civil rights.

We stand by that. It’s a vile idea as well as merely being a bad one.