Wealth taxes are a damaging and impractical policy that would harm Britain’s economy at a critical time.
There is a reason why Dennis Healey, Labour Chancellor from 1974–1979, said that “we had committed ourselves to a wealth tax; but in five years I found it impossible to draft one which would yield enough revenue to be worth the administrative cost and the political hassle.” There is also a reason why Austria, Denmark, Finland, France, Germany, Iceland, Ireland, Luxembourg, the Netherlands, and Sweden all implemented wealth taxes and then repealed them.
Even the tax expert and Labour Party member, Dan Neidle, has said it would be “arrogant” of the Government to think a wealth tax would work in Britain when it has failed everywhere else. He added: “current real world wealth taxes are either full of loopholes so the mega wealthy don’t pay (such as Spain), apply to the middle class (Norway), or both (Switzerland).”
Deutsche Bank’s Chief UK Economist, Sanjay Raja, has explained that “in reality, it’s very difficult to implement wealth taxes. Issues around asset valuation on businesses or real estate makes it difficult, complex, and costly to do across an entire country. It requires significant upskilling, infrastructure capacity and personnel to implement effectively and fairly.” He also warned of liquidity problems: “on paper, some people may be classified as ‘wealthy’ or meet the threshold for a wealth tax – however, in practice, they may lack the cash to pay the tax given illiquidity of some assets.”
Finally, the Institute of Fiscal Studies has concluded: “international experience of annual wealth taxes is not encouraging – they have been abandoned in most of the developed countries that previously had them.”
Time and time again the reality is that wealth taxes are almost impossible to implement and do not end up raising meaningful sums of tax revenue. Whilst the idea of a 2 per cent wealth tax may not initially sound like much, for someone earning an 8 per cent return on their assets a wealth tax plus existing dividend taxes creates an effective tax rate of 60 per cent — and on a year when assets decline the effective rate would exceed 100 per cent.
The tax proposed by Lord Kinnock would apply to the most mobile people in the world. Even before the suggestion of a wealth tax was raised, Henley & Partners estimated that 16,500 millionaires would leave the UK in 2025 — more than any other country in the world and more than double the number leaving China.
Frankly, it is hard to think of a more damaging policy that could be implemented given our current economic conditions.