How a wealth tax might function in practice
Last week, Peter Lamb MP wrote an article about some of the practical aspects. He was proposing alternatives to welfare cuts, emphasising the importance of understanding how a wealth tax would function.
Who would pay for it?
Only a small group of people would be affected. Tax reform proponents propose a 2% annual tax on fortunes over £10 million.
This means that everyone with a net worth less than £10 million is unaffected. This 2% annual tax would effect approximately 20,000 persons in the UK, or less than 0.04% of the total population.
To emphasise, they would only pay tax on wealth over £10 million. How will it be collected? One typical complaint of a wealth tax is that it would be difficult to collect.
This assumption is frequently based on prior wealth taxes in other nations. In these cases, the tax threshold was frequently significantly lower, ranging from hundreds of thousands of pounds to low millions.
This meant that many more people were obligated to pay the tax, making collection more difficult. The proposed wealth tax would only apply to 20,000 people, making administration much easier for HMRC. Like inheritance tax, it would require the taxpayer to self-declare asset values, which would be supported by an HMRC compliance team.
HMRC could potentially continue to construct asset records. This would also help crack down on dirty money. Willn’t the rich just leave? Dr. Arun Advani of the Centre for the Analysis of Taxation and the University of Warwick conducted the modelling that informs our wealth tax proposal.
According to his research, changes in behaviour, such as relocating abroad or attempting to hide assets, would result in a loss of 7 to 17% of prospective revenue. Even with this potential behavioural change in mind, the wealth tax we propose would still raise £24 billion each year.
The larger issue here is that the vast majority of extremely wealthy people will choose to remain in the UK even if a wealth tax is implemented. Why? Because their lives are here. They have family, friends, and connections, and they enjoy living in the UK. They frequently prioritise these goods over paying somewhat less tax.
“A study by the London School of Economics finds that the rich are, in fact, very unlikely to relocate because of tax rises alone, particularly those living in some of the world’s largest cities, such as New York, London and Tokyo” . That is a quote from a Financial Times piece published last year.
The survey questioned 35 ultra-wealthy London residents, and none of them intended to move for tax reasons, despite the scare headlines at the time. How much could it raise?
The wealth tax tax reformers propose may generate £24 billion every year. Let’s put that in context.
That’s enough to reverse all of the projected cuts to disability benefits, reinstate the winter heating allowance, and leave tens of billions to invest in the NHS or public services.
Let us never forget this context. We are campaigning for a wealth tax on the ultra-wealthy in order to help people, establish a stronger social security net, and provide higher-quality public services that benefit everyone.
