Using economic growth to deal with the debt accrued during the pandemic is a more realistic path for the UK than a wealth tax, the Institute for Fiscal Studies' head of tax has told delegates at the Labour party conference.
Speaking in a tax debate yesterday evening (September 28), Helen Miller said while a lot of people have been talking about a new wealth tax to pay for the high levels of spending seen in the pandemic, "growing our way out of this debt is a much more realistic path for us".
Miller said that as three quarters of the wealth in the UK is held in houses or pensions, more specificity was needed to work out what exactly would be taxed.
“We need to be really clear on what specifically we’d like to achieve with a wealth tax, because we need to design a tax that matches our objectives," she said.
“I’m not yet convinced that the benefits of a wealth tax would outweigh the costs, even on a principle basis, and when you consider the sheer practical difficulty of administering a wealth tax...an annual wealth tax is not the right path.”
However, she added an eye should be kept on the day-to-day levels of spending relative to taxes, and some form of sacrifice will need to be made.
“We find ourselves in an unusual situation where despite having large tax raises this year already, we’re going to have taxes that are a higher share of income than they’ve ever been in the UK on a sustained basis, that’s not going to be enough to avoid some tough choices in the future.
“Governments are going to have to either cut spending, not do some programmes that they’ve planned, or they will have to raise taxes, or a combination of those things.”
The idea of a wealth tax to pay for the costs of the pandemic has been floated recently in the form of a one-off tax, removing certain tax reliefs (for example on dividend income or private equity investments), or adjusting current taxes (either inheritance tax or capital gains tax).
On Monday (September 27), shadow chancellor Rachel Reeves said under a Labour government tax breaks for private equity managers would be scrapped amid a wider review of taxation, specifically tax reliefs.
Reeves said she would also abolish the current system of business rates and introduce a new rate, which would include a lowering of the threshold for firms to qualify for business rates relief, as well as a tax system based on property value.
In May, the Organisation for Economic Co-operation and Development (OECD) said countries should increase their rates of inheritance tax (IHT) and close loopholes used by the wealthy to avoid this tax, in order to support economies impacted by Covid-19.
In a report released on May 11, the body highlighted the high level of wealth concentration in many countries, with inheritances and gifts reported by the top 20 per cent of wealthiest households close to 50 times higher than those reported by the poorest 20 per cent.
It added IHT can be an important instrument to address inequality, particularly when economies are under pressure, saying the levy was easier to collect and generated lower efficiency costs than other taxes on the wealthy.
Last December, a report from Warwick University and the London School of Economics said a one-off wealth tax on all individual assets above £500,000 and charged at 1 per cent for five years would raise more than £260bn for public finances.
According to the report, such a tax would be economically efficient, raise more tax from those who have more wealth and would be “very difficult” to avoid.
The tax would be paid by individuals whose total wealth, after mortgages and other debts and after splitting the value of shared assets, exceeded the tax threshold and only on the value of wealth above that line.
sally.hickey@ft.com
