UK: Economic cost of Covid crisis prompts call for one-off wealth tax.

As published on theguardian.com, Wednesday 9 December, 2020.

The government has been urged to launch a one-off wealth tax on millionaire households to raise up to £260bn in response to the coronavirus pandemic, as the crisis damages Britain’s public finances and exacerbates inequality.

The Wealth Tax Commission – a group of leading tax experts and economists brought together by the London School of Economics and Warwick University to examine the case for a levy on assets – said targeting the richest in society would be the fairest and most efficient way to raise taxes in response to the pandemic.

In a highly anticipated report, the group, which has drawn attention from the Commons Treasury committee and the former head of the civil service, Sir Gus O’Donnell, said its proposals would be preferable to a broad-based tax raid on workers’ incomes and consumer spending.

It said a wealth tax could raise £260bn over five years if the threshold was set at £1m per household, with a levy of 1% payable on the value of their assets above this level. This would be equivalent to raising VAT payable on goods and services by 6p, or by adding 9p to the basic rate of income tax for the same period, the commission said.

The tax would apply to a person’s total wealth – including their home and any other properties, pension pots, business and financial wealth. Any debts, such as mortgages, would be deducted. At thresholds of £500,000, £1m and £2m per person, a wealth tax would respectively cover 17%, 6%, and 1% of the adult population.

To sidestep concerns that a new wealth tax could hurt people who are ‘“asset rich but cash poor” who could be forced to sell their home to pay the tax bill, the Commission said the one-off levy could be spread out over five years and people could be offered more time to pay.

Arun Advani, assistant professor at the University of Warwick, who is one of three commissioners behind the study, said: “We’re often told that the only way to raise serious tax revenue is from income tax, national insurance contributions, or VAT. This simply isn’t the case, so it is a political choice where to get the money from, if and when there are tax rises.”

The report comes as the chancellor, Rishi Sunak, explores potential options for raising taxes from as early as next year in response to record government borrowing incurred during the pandemic.

The UK government’s budget deficit – the gap between spending and tax income – is on track to hit almost £400bn this year, as the state pumps billions of pounds into its pandemic response and tax receipts plunge amid the Covid recession.

Although the chancellor has been urged to delay tax rises or spending cuts until the economy is on a sustainable path to recovery, he used last month’s spending review to freeze public sector pay and cut the overseas aid budget. Sunak has also warned that “hard choices” on tax and spending will be required in future.

Calls for a wealth tax have been made before with little impact, amid fears that a levy on assets would go down badly with some voters and could hurt people with valuable homes but low incomes. Sunak has previously dismissed calls for a wealth tax, saying he believed there would never be an appropriate time for such a plan.

However, the Wealth Tax Commission said the timing was ripe for radical change due to the devastating impact of Covid on the public finances and on inequality in Britain.

It said that one-off taxes have been used after major crises before, including in France, Germany and Japan after the second world war and in Ireland after the 2008 financial crisis.

Rebecca Gowland, the head of inequality campaigning at Oxfam, said: “At a time when so many people are facing hardship as a result of the pandemic, this feasible and deliverable one-off wealth tax could transform lives – an uncomfortable truth for vested interests that are likely to resist it.

“The difference this revenue could make for the most vulnerable in society is staggering. Just a quarter of the extra money raised would be enough to keep and extend the social security weekly uplift and allow us to meet our lifesaving aid promise to the world’s poorest people.”