19/11/20

UK: Wealth tax too expensive and complex, MPs are warned.

As published on uk.finance.yahoo.com, Wednesday 18 November, 2020.

A post-Covid tax on wealth would be wasteful, inefficient and tremendously difficult to impose, analysts have warned as ministers fight to plug the UK’s record budget deficit.

Plans to charge a tax on the value of houses, pensions and assets are likely to prove counterproductive and fail to raise the vast sums needed by the Treasury to pay for Covid debts, experts said.

They told MPs on the Treasury Select Committee that few other countries have had success with the policy - leading most to abandon their wealth taxes over the past few decades.

Mandarins are seeking ways to pay for more than £400bn of borrowing this financial year follwing extraordinary measures to fight coronavirus. Some left-wing campaigners have suggested a raid on wealth could be a quick way to plug the gap.

But Sir Edward Troup, a former first permanent secretary at HMRC, said that even calculating the wealth to be taxed is extremely difficult.

He said: “It would be expensive - it would probably cost individuals about 1pc of their wealth to do the assessment, it would require a lot of additional professional support, it would require a lot of HMRC support.

“It is possible. It would be complex, it would be expensive and there would be a question as to whether the amount of resources put into that from the public and private sector would justify whatever you would raise from it.”

If such a levy is to succeed in raising serious sums of money, it could need to begin with a threshold of as little as £500,000 per person, including family homes and pension pots.

However, accessing cash to settle the tax bill is difficult, as a family with a valuable home but little cash would struggle to pay - potentially an issue for many millions of relatively low earners in London and the South, where house prices have climbed sharply since 2000.

Raiding pensions pots is similarly tricky, while assets such as family businesses are hard to value.

Barrister Emma Chamberlain, of Pump Court Tax Chambers, said: "I am not sure we want to turn our nation into a nation of bookkeepers and valuers, which an annual wealth tax may well force us into."

If done as a one-off, a 4pc tax on such wealth would affect 7m people and raise in the region of £200bn, said Arun Advani at the University of Warwick.

One way to try to ensure compliance and prevent avoidance would be to announce a one-off tax to be applied retrospectively to wealth held at a given moment in the past, then demand payment over the next five years.

But Tim Worstall of the Adam Smith Institute said this would be “akin to theft”.

He said: “Taxing people today on what they earned last year, changing the law on them, I regard as an appalling breach of civil rights."

Mr Advani said the Government would be better focusing on reform of inheritance tax and capital gains tax to raise cash, dismissing a wealth tax as “a poor second best” with much more arduous administration.

Wealth taxes on the scale being discussed have been raised as an option amid mounting concern over the cost of Covid rescue plans such as the taxpayer-funded furlough scheme.

The splurge has already sent Britain's national debt rocketing above £2 trillion for the first time, taking it higher than 100pc of GDP for the first time since 1963.

This borrowing is affordable at a time of low interest rates, but will be a burden on the taxpayer for many years to come.