Happy Tax Freedom Day, America!

As of June 2024, this is out of date. Please refer to Tax Freedom Day 2024 for the updated statistics.

Today (17 April) is Tax Freedom Day in the United States. Today, average Americans, who have been working every day for the sole benefit of the tax authorities, can finally have a beer and rejoice that, for the rest of the year they are working for themselves. It means Americans have to work 107 days of the year to earn enough money to pay this year's federal, state and local taxes.

Lucky them. Tax Freedom Day in the Britain, calculated annually by the Adam Smith Institute, does not come round for another six weeks – not until the 29th of May, to be precise. That means the average person in the UK will spend 149 days this year working for Chancellor George Osborne's tax gatherers. Including the extra Leap Year day, that is two whole days more slave labour than last year, when Tax Freedom Day fell on the 28th of May. (According to the Treasury's adjusted figures.)

And things here are actually even worse than that. As well as taking money off us in taxation, the government is also borrowing at record levels. And that debt will all have to be paid for eventually – by current and future taxpayers, of course. That, says the Adam Smith Institute, pushes the real cost-of-government day – when we have worked long enough to pay for both the government's taxes and its borrowing – out to 23 June.

ASI's Director, Dr Eamonn Butler, says "Tax Freedom Day, which we have been calculating for the last 25 years, is the plainest way to show what the tax burden really is. That is why the Treasury hates it. They of course want to conceal how much tax we pay, which is why they are so keen on stealth taxes."

"But we put in every tax, including stealth taxes  – income tax, national insurance, council tax, excise duties, air passenger taxes, fuel and vehicle taxes and all the rest – and show just how long the average person has to work to pay their share of them all. The stark truth is that this burden costs us all XXX days of hard labour every year. That's not how long a rich person has to work – it is the time the average person must labour for the tax collectors."

"An increasing number of economists believe that Britain's taxes are too high and are choking off recovery. Some politicians say they need to keep taxes high in order to balance the government's books. But the trouble with governments is that they always spend everything they raise in tax – and then as much more as they can get away with borrowing. Just as the rest of us have had to cut back, so should the government. The UK economy would be a lot healthier for it."

Note to editors: Tax Freedom Day in the United States is calculated by The Tax Foundation, which uses the same methodology as the Adam Smith Institute in the UK. The UK figures have been compiled for the Adam Smith Institute by the award-winning City analyst, Miles Saltiel.

Is there a mole in Boris’s camp?

I nearly choked on my coffee when I was telephone canvassed by the Boris campaign last week. The enthusiastic canvasser promised me that “If elected, Boris will create 200,000 new jobs over the next four years”.  Now I happen to believe in the free market economy; that is, the private sector.  State jobs are bogus.  They are paid for by the private sector which can therefore invest less.  As the state is less efficient it always results in a net loss of jobs.

Was Boris going to employ another 200,000 civil servants?  The girl on the other side of the phone also assured me that Boris had put an extra 1,000 police officers on the beat.  Well, I can live with that.  Was he proposing to add another 200,000 police?  Even if they were to be kept busy enforcing the Coalition’s planned ban on raunchy pop videos, the planned fat tax,  or plain packaging for cigarettes, it seemed a high number. The planned massive increase in internet surveillance will be done electronically.  So how was Boris going to do it?

The Back Boris 2012 website enlightened me.  Sadly virtually every single job proposed to be created is of the statist variety.  As in: private sector pays tax and therefore loses jobs; government spends the tax on creating jobs.  As always when the state “creates” jobs, bureaucracy, failed planning, inefficiency and non-existence of individual financial responsibility will result in eye-watering amounts of taxpayers’ money going down the drain.  When government acts the side effects become the main effect.   There is always a net loss of jobs, as state investment is not as efficient as private sector investment.  When the state grows the dole queue grows more. 

Let us look at some of the job “creating” schemes proposed.  Building 55,000 affordable homes would create 100,000 new jobs.  At 18%, England has more social housing than France, and three times as many as Germany.  If taxes were lower, more people would build or buy their own house, resulting in just as many, if not more jobs.

The tube upgrades would create 18,275 jobs paid for by taxpayers’ money.  God knows that the tube needs upgrades.  However, it is likely that it would cost a great deal less if the tube was run privately.  That would allow for a tax cut, which in turn would allow the private sector to create more jobs and wealth. 

The Royal Docks Enterprise zone: 1,500 jobs.  Why should politicians single out specific politically advantageous zones to benefit from free market economics?  The whole of the UK should be an enterprise zone.  Those who wish to remain over-planned, over-regulated, and over-taxed could elect to form Special Bureaucracy Zones.

The European Regional Development Fund would “create” 2,300 jobs with taxpayers’ money. The ERDF is Europe’s vehicle to support failure.  Instead of tackling failing economies by liberating them from state interference, subsidies are thrown at them.  When that is done by Europe the link with job destroying taxes is completely invisible.  We should refuse to take ERDF money.  We should refuse to finance the ERDF altogether.

There is perhaps little risk of freedom lovers supporting Red Ken instead.  But who came up with state job creation as part of Boris’s Manifesto?  Is there a mole?

Everywhere should want to be a tax haven

This is slightly disturbing, finding myself agreeing with Francis Maude on something. But he's absolutely correct here:

“I recollect twenty years ago as a financial secretary I was taking a finance bill through parliament, a Labour MP said indignantly to me: ‘You are just trying to turn Britain into a tax haven’. To which my response was: ‘Thank you very much, I appreciate the compliment.’

"And that is exactly what we’re trying to do. We want Britain to be a place where people don’t mind being taxed....."

Using this definition then everywhere, all the time, should be striving to become a tax haven. For if you don't mind the tax that you've got to pay then you're roughly happy with the deal that you're being offered in return for that tax. Perhaps it is true that government allows the rich to get rich: OK then, if the rich stick around and pay the taxes to pay for that government then this is proof perfect that the rich think they're getting their money's worth. Similarly, if absolutely no one ever does a £50 job off the books to dodge VAT then it's an agreement that everyone thinks that what they get for their VAT is worthwhile.

We can also put it the other way around. That people are attempting to avoid tax, that people are attempting to evade tax, is similarly proof perfect that they believe they are getting a bad deal. It might be that they think that they're not getting enough for the cash they have to feed into the maw of the State: that government is inefficient. It might be that they think they're getting too much government and thus that the marginal amount they're getting just isn't worth having.

The intermediate stage, that government is both efficient and we've got just the right amount of it cannot logically be true: not if anyone refuses to do the paying for it it cannot be. For that very refusal to pay is evidence that those refusing don't agree with the statement.

So, yes, everywhere should be striving to be a tax haven. A place where people don't mind being taxed because they think that what they get for the amount they're charged is fair and reasonable.

There is a delicious corollary to this of course: all those insisting that people must be forced to pay taxes are, by definition, agreeing that the people being taxed don't think the taxes are fair and reasonable....

Something to strike about

It's probably been the most shambolic week in the government's history. "Pastygate" was fun, but Francis Maude has nearly sparked a fuel crisis by warning people to stock up before an impending strike by fuel lorry drivers.

I don't have much sympathy for the striking fuel drivers' demands. The regulations they want "minimum standards covering pay, hours, holiday and redundancy for fuel tanker drivers", essentially a way of entrenching existing lorry drivers in their jobs, driving up costs for consumers and creating barriers to entry for prospective drivers. It's a private dispute, and the drivers have the right to strike if they wish (although I don't think the state should stop employers from sacking them if they do so), but it's not really something the government should be getting involved with. 

On the other hand, there is a legitimate fuel that the rest of us should be getting a lot angrier about. Petrol prices are at an all-time high, and even adjusted for inflation things are tough. The immediate cause of this spike may be things like demand from China and turbulence in the Middle East, but all this is only actually hurting consumers because of the taxman. Here's a breakdown of the cost of a £1.38 litre of petrol:

Product: 47.8p

Retailer: 5p

VAT: 22.15p

Excise duty: 57.95p

In other words, around 64% of the price of petrol at the pump is down to tax. 

What's more, the only real reason that this fuel strike would cause so much disorder is because of "anti-hoarding" laws that ban people from keeping more than 10 litres of petrol in their garages. Panic-buying petrol may be stupid, but it's not surprising when people are blocked from building up a private reserve in normal times. [Update: The story this morning of a woman catching fire trying to decant petrol in her kitchen underlines this point: If private stockpiling were legal, there would be a market for safer containers and equipment that would help to avoid this kind of accident.]

Transport costs make up a signficant proportion of a lot of food and other essential goods. So fuel taxes don't just hurt people at the petrol pump, they also make up a signficant proportion of the cost of everything else we buy. If there's something worth striking about, it's that.

A free market take on the 2012 budget

Generally positive on tax…

• Cutting the 50p tax rate to 45 percent is a step in the right direction, but the Chancellor should have scrapped this altogether. The danger is that the 45p will become a permanent rate. The government should commit to scrapping this new top rate tax before the next election.

• Raising the personal allowance to £9,025 is also very welcome. The government should raise its target from £10,000 to £12,400, which would lift minimum wage earners out of tax altogether.

• The government’s commitment to merging income tax and national insurance is very encouraging. Britain’s tax code is absurdly complex and tax simplification should be one of the government’s top priorities.

• The ‘tax receipt’ idea could make a big difference. By making spending more transparent, people will be better able to hold the government to account for its fiscal policies. With a bit of luck, these tax receipts could sow the seeds of a small government revolution as more people realise how wasteful government spending really is.

• The additional cut in corporation tax is a good, pro-growth measure that will boost Britain’s economic competitiveness. But it should go further – competing with large countries is not enough anymore, and a corporate tax rate higher than 20% is still too high. Furthermore, the new and/or expanded allowances and tax credits the chancellor announced will increase complexity and run against the general theme of tax simplification.

But there are a few negatives on tax too…

• Raising tobacco duty by 5% above inflation is petty, vindictive, and possibly self-defeating. Such taxes are already extremely regressive, hitting the poorest the hardest. Moreover, high levels of tobacco duty are already encouraging smuggling and counterfeit cigarettes. Cigarette smugglers will be very pleased at today’s duty hike.

• Reducing the 40p rate threshold will mean that only basic rate taxpayers will benefit from the personal allowance rise. Up to 300,000 people will now find themselves upper rate taxpayers as a result. This will hit single-earner families particularly hard.

• The General Anti-Avoidance Rule is a bad idea. It leaves far too much latitude for bureaucratic discretion. It adds another layer of complexity on our labyrinthine tax code. And it is an affront to the rule of law. Radically simplifying taxes is a much better way of ensuring people pay their fair share.

• Raising Stamp Duty Land Tax on homes worth more than £2m is a politically-motivated sop to the Liberal Democrats. Taxes like stamp duty are damaging because they discourage transactions and gum up markets. They also raise very little revenue.

The budget is weakest where it strays into industrial policy…

• Was the tax credit for animation, video games, and high-end TV production designed just so the Chancellor could make his ‘Wallace & Gromit’ joke? These are unquestionably attractive, wealth-creating industries, but the government should not be picking winners and advantaging politically-favoured businesses over less fashionable ones like this.

• In promising to fund superfast broadband in 10 British cities, the government is creating a role for itself where it just isn’t needed. Over the past two decades, the private sector has delivered (and continues to deliver) a vast digital infrastructure at virtually no cost to the taxpayer. It is hard to think of a better example of something the state should simply stay out of.

• The Chancellor’s call for increased airport capacity in the South East is a good thing, but it is worth remembering that the politically-motivated rejection of such airport capacity has been explicit government policy up until now.

• The various credit, business, and construction support schemes contained in the budget are misguided, and will do little except preventing markets from adjusting to changed economic circumstances, as they must if we are to return to robust, sustainable growth. Nevertheless, these schemes are probably small enough to be dismissed as pointless gimmicks rather than serious market distortions.

The macro outlook is worse than the chancellor is letting on…

• The growth forecasts the chancellor announced still look implausibly optimistic. The public sector, financial industry, and housing/construction sectors all boomed unsustainably in the 2000s, and must probably contract further as the economy rebalances. We are weighed down by debt, and the deleveraging process has barely started. So in the absence of significant and radical supply-side measures to boost growth in the rest of the economy, it is hard to see how these forecasts can be met. And that’s before you even consider the sizeable downside risk posed by the eurozone crisis and our still-fragile banks.

• The government’s borrowing costs are low not because of the chancellor’s fiscal rectitude, but rather because the Bank of England is directly intervening in the gilts market to reduce borrowing costs via quantitative easing, and because things in the eurozone are even worse than in Britain. The economy may be getting better, but the overall macro-economic picture remains far worse than the chancellor is likely to admit. 

• Finally, it is worth remembering that for all the talk of austerity Britain, the government will still borrow £126bn this year. That’s £14.5m an hour, every hour, all year long. 

Can the budget breathe life into the economy?

It is worth remembering that no chancellor, however enlightened, can really be said to breathe life into the economy. Believing otherwise gives rise to all kinds of hubristic policies, which do little more than redistribute wealth from one area of the economy to another. In fact, all the chancellor can do is create the conditions in which the wealth-creating private sector can grow and prosper. This is the yardstick by which the forthcoming budget should be judged.

So what can we hope for from the chancellor? What can he do to help Britain’s beleaguered wealth-creators? Step one is to cut taxes. And here, perhaps we can be more optimistic than usual. All the indications are that the 50p tax rate is set to be cut to 45 percent. The chancellor ought to go further and faster, since cutting marginal rates for higher-earners has a history of boosting growth without significantly impacting revenues. But this is a start, and it sends a clear message that Britain is open for business. Raising the personal allowance, and leaving a bit more cash in every worker’s pocket, is a good move too.

Combined with the gradual reductions in corporation tax that we already know about, these moves make for an encouraging pro-growth tax agenda. But more needs to be done. Firstly, the chancellor must avoid the temptation to give with one hand and take with the other – so no new stealth taxes, and no more populist assualts on ‘the rich’.  More importantly, the chancellor needs to realize that Britain’s treatment of capital and investment is uncompetitive and economically damaging. Taxes on savings, dividends and capital gains should be reduced immediately, and ultimately eliminated altogether.

That is likely too much to hope for now. But there are other, politically easier things the chancellor could announce on Wednesday. Chief among these is a concerted effort to deregulate the UK economy, systematically reducing barriers to market entry, cutting costly red-tape, and boosting competition. The trouble is such campaigns have been announced countless times before, but the regulatory burden has just kept growing. This time, we need more than rhetoric.

Two areas are worth particular attention. Firstly, it is rumoured that the budget will contain early details of a new regulatory framework for the flourishing internet and technology industries. It is vital that this framework is the very epitome of ‘light-touch’ and does not stand in the way of innovation, growth and job creation. Sadly there are already indications the chancellor’s announcements will fail this test. Secondly, the chancellor ought to build on David Cameron’s recent call for more private investment in the road network by signalling the government’s intention to radically liberalize the planning system and free the private sector to invest in (and charge for) new infrastructure.

Cutting taxes, reducing regulation, and encouraging investment – these are the three most crucial things the chancellor’s budget can do to help the private sector breathe life into the UK economy. But there is also a broader point to be made. Britain’s financial crisis and recession was no random event – it was the product of the credit-fuelled boom that preceded it. Years of easy money distorted the economy, creating unsustainable booms in finance, property and the public sector, and left us weighed down with debt. Thanks to bailouts, quantitative easing, and record-breaking budget deficits, those problems are still with us. We haven’t allowed the economy to adjust, and that is significantly damaging our growth prospects. Such problems will take time to unwind, but for now, the chancellor must find the strength to eschew popular but counter-productive policies like credit easing and housing market stimulus. Doing otherwise risks the long-term zombification of the British economy – the very opposite of what the chancellor wants to achieve.

A tale of two minimum prices

Consider two propositions. Firstly, that a minimum price on a unit of alcohol will reduce alcohol consumption by making cheap booze less affordable. Secondly, that minimum wage laws increase the price of a unit of labour, but do not lead to greater unemployment. 

These two statements are logically inconsistent and yet many people are able to hold both simultaneously. Some people take the opposite view: that minimum pricing won’t work, but that the minimum wage destroys jobs. They, too, seem to believe that employers respond differently to higher costs than drinkers.

There would be less disagreement if the minimum wage was raised to £50 an hour and the minimum price was set at £20 a unit. Clearly, there is a point at which the price exceeds what people are willing to pay. The only question is whether 50p a unit – as demanded by the ever-demanding British Medical Association – reaches that point. If 50p proves ineffective, we can surely expect campaigns for a 60p, 70p and 80p unit price in the years ahead.

Demand for alcohol is often inelastic, most obviously for alcoholics, but so is demand for labour. If a supermarket chain wishes to open a new store, it will have to employ shelf-stackers. The minimum wage might compel this employer to spend more on labour costs than would otherwise be the case, but at £6.08 an hour, it is unlikely to plunge him into bankruptcy. He might have to find savings elsewhere, but the store will still open. 

The situation might be different for the sole trader who is offered a contract to make a thousand widgets. The contract can be fulfilled, but only by taking on staff. If he pays £5.50 an hour, there is just enough profit to make the job worthwhile, but at £6.08 the margin is too tight. Deciding that the job is not worth the hassle, he turns down the contract and it goes to a company in China. We cannot know how often decisions like this are made, but it is doubtful that they are never made at all. The demand for labour may be relatively inelastic, but it is not totally rigid.

The minimum pricing of alcohol differs from the minimum pricing of labour only insofar as it is explicitly aimed at reducing consumption. The unintended consequence of the minimum wage is the intended consequence of minimum pricing and vice versa.

Ultimately it is a moral question. We might accept the loss of a few jobs for the higher goal of ensuring a higher wage for the low-paid, just as we might accept that forcing the majority to pay more for their beer is a price worth paying if a few problem drinkers cut down their consumption. The economics remain the same in both cases, but there is one significant distinction. Whereas the minimum wage compels supermarkets to give low-income workers more money, minimum pricing compels poor consumers to give supermarkets more money. No matter how noble the intention, that would be a peculiarly ignoble consequence.

Regional pay is the only sensible option

The Chancellor's proposal to end national pay bargaining in the public sector has been met with the usual howls of protests from trade unionists. They see it as a stealth cut in their members' wages.
Maybe, but for decades there has been a stealth rise in those wages. Public pay now averages 8% more than in the private sector – and the hours, holidays, sickness breaks, and of course those gold-plated pensions, are all much better. But the difference is a shocking 18% in Wales.

What has been lost in all the fuss and smoke is that no current public sector employee will suffer a pay cut. Wages will come to reflect local circumstances and the local cost of living, but the changes will be phased in gradually. Public sector workers in the South East, where the cost of living is higher and the public-private differential is just 0.5%, will actually get a pay rise. That's not a sop to rich southerners at the expense of poor northerners. It is simply recognising that the cost of living in different parts of the country is different.

Many areas of the UK are poor precisely because high wages in the public sector, brought about by the national pay rates system, have driven out private sector jobs and investment. Quite simply, when public sector wages are 18% higher, people's focus is on getting a job in government, not in the wealth-producing industries. Employers cannot compete when the public sector has an edge like that, and siphons off the most qualified workers. It means that it becomes much harder to recruit staff and start new businesses – so fewer new businesses are created, and the region remains in thrall to government, rather than developing new industries and initiatives of its own.

The same is true in reverse, of course, when private sector wages are higher than public sector ones. Then, the public sector cannot get the staff it needs, and schools and hospitals are understaffed, or have to get staff from abroad. I used to be governor of a very good state school in Cambridge, which had such a high reputation that it never had any trouble getting potential new teachers to come for interview. But when they checked the local property market, they quickly discovered that they could not afford to live there. So replacing and recruiting staff became a nightmare.

It is only fair and sensible to take account of local circumstances in public pay bargaining. It will be good for the country too. And it will be particularly good for industry and employment in those depressed parts of the country where high public wages have driven out private enterprise.

Budget 2012: Expect nothing and you won't be disappointed

In 1947, the Chancellor Sir Hugh Dalton mentioned some of his tax changes to a journalist. Unfortunately they appeared in the early edition of an evening newspaper before he had finished his speech, and he was forced to resign as a result. Quite different from today, when the Liberal Democrat and Conservative partners in the UK's coalition have been debating their different tax ideas in full view of the public. Apparently that is the way the do it in Sweden, and Nick Clegg, the LibDem leader, was so taken by it that he decided to import the process into the UK.

Frankly, this kind of discussion should be done in private. Doing it in public simply raises the stakes, and makes it harder for either side to back down or compromise in case it makes them seem weak. And it makes tiny issues seem hugely important – rather like those bitter disputes between academics. As the political scientist Wallace Sayre put it, 'academic politics is the most vicious and bitter form of politics, because the stakes are so low'. But we have been having an equally bitter row about whether the 50p tax on high earners should be cut – not abolished, it seems, but cut, to just 45p.

As the Adam Smith Institute has demonstrated, from evidence around the planet, the 50p tax does not work. It is so high – even higher when you add national insurance contributions, another stealth tax on work – that it becomes well worth avoiding. So, for example, people who are threatened by the tax do not take their income in cash, but simply shove it into their pension pot, where it attracts 50% tax relief. The Treasury gets nothing.

So why not abolish it? Because it is a LibDem totem. They want 'the rich' to pay more to 'help us out of the financial crisis'. So the deal is that we will have a 'mansion tax' and a 'tycoon tax' – tightening up on avoidance measures – and taking more low earners out of tax entirely.

We at the Adam Smith Institute are very keen on taking poorer people out of tax. It is absurd that folk on the minimum wage get socked for income tax. It greatly reduces the incentive to come off benefits and look for work. But a tax on mansions? You work, you pay tax, you save, you pay tax on any interest you earn from that, and then you buy a house in London, and then you get hit for tax on that. And as for tightening up on tax avoidance – like those rock stars using offshore companies to buy their UK homes so they don't pay stamp duty or inheritance tax on them – well, you can be sure that the new rules will make the tax system even more complicated, and that all those rock starts' expensive accountants will find yet other ways round them.

And in return? Cutting the 50p tax to 45p will do no good at all. It still looks like a spite tax on enterprise and success. It will still drive people abroad, and discourage others from coming to Britain to do business.

***

Another measure which the Chancellor seems to have accepted, as part of the 'crackdown' on tax avoidance, is the Revenue's idea for a General Anti-Avoidance Rule. The concept is that if you set up some scheme solely to avoid tax, it will be declared illegal. (In past years, for example, people had themselves paid in rhodium or champagne because there was no national insurance on it. Of course, it was just a tax-avoidance scheme, and companies arose which would 'buy and sell' these commodities, taking a cut and handing back most of what you would have earned anyway. And there are still countless other avoidance schemes.)

This GAAR as it is called, is one of the most dangerous changes UK taxpayers have ever faced. Right now, you can organise your affairs any way you like, within the rules, to keep down the amount of tax you have to pay. Sure, if you find a loophole, the Revenue will try to close it. But finding loopholes is not illegal: the Revenue should be more careful in writing the tax rules in the first place.

The danger in GAAR is that it is not you, but the Revenue, that decides how your affairs are organised. You may be doing something which is in fact entirely legitimate and not even designed to save you tax. But if the revenue figures that by organising your affairs in a different way, you would be liable for more tax, then they must be hugely tempted to send you a bill for the higher figure. You could always challenge it in court – but the Revenue has deeper pockets, and more time and patience, than the average taxpayer. I would prefer taxpayers to decide how their affairs are organised – not the Revenue.

***

A more promising measure that has been trailed before the Budget is a £100bn scheme to privatise and lease out the motorways. There is much misunderstanding about this. The idea is not that motorists should suddenly find themselves paying tolls to private motorway owners. Rather, it is to enable private consortia to take over motorways, or build new ones, and be paid by the government according to the traffic that uses them. It is something that the Adam Smith Institute was advocating back in the 1980s.

Such an arrangement would encourage private consortia to invest in where they believe the infrastructure is most needed – something that civil servants are not good at – and be paid more if they are used more. Which seems like a good way to manage the public finances and focus taxpayers' money where it is needed. And if taxpayers get £100bn up front, that's a useful deficit-busting sum right now.

A mansion built upon the sand

In the speculation about possible Budget ideas, one of the very worst is the proposal for a mansion tax.  Originally favoured by Vince Cable, the proposal has been to tax expensive homes, with homes valued at over £1m initially targeted, and with subsequent proposals suggesting £2m. 

The proposal should be a non-starter.  Instead of taxing the rich, it would probably tax the elderly.  Oligarchs and other rich home-owners are familiar with offshore trusts and company purchases to avoid the stamp duty, and would doubtless find similarly clever ways to escape a Mansion Tax.  The widow or the elderly couple who have paid off their mortgage and seen the value of their home rise over a lifetime would be liable for the tax, however.  The bureaucracy and costs of collection would diminish any potential yield, so it would become just another token way of punishing 'the rich,' rather than a revenue-raising measure.

A Mansion Tax is also bad law because there is no cash stream for it to tap.  Income tax can be paid from earnings, and VAT can be paid when a purchase is made, but there is no transaction or income stream from simple ownership.  The government is simply confiscating part of the value of a home every year.  It is, in effect, theft by installments.

When France introduced a wealth tax there was an immediate and sustained flight of capital from France.  Since wealth left there would gradually be taken from them by government, owners of capital chose instead to keep it in countries that would allow them to keep it.  Those countries, including the UK, benefitted, while France lost out.  There is no doubt that people would not choose to buy homes in Britain if they knew government was going to confiscate their value over the years.

That the idea was taken seriously, even for a moment, says nothing good about the way Britain approaches the whole topic of taxation.  If government wants to levy taxes more efficiently, it should make them so simple and unburdensome that people will find it easier to pay them than to find complicated ways of escaping them.