I am aware that my old friend, Howard Reed, has produced the data for the TUC's proposed new wealth tax.
As the TUC say:
The TUC has called for a national conversation on taxing wealth, as it publishes new analysis today (Friday) which shows a modest wealth tax on the richest 140,000 individuals – which is around 0.3% of the UK population – could deliver a £10.4 bn boost for the public purse.
The analysis sets out options for taxing the small number of individuals with wealth over £3 million, £5 million and £10 million, excluding pensions.
The TUC says these options are illustrative examples of what a wealth tax could look like, using Spain's existing policy as a potential model.
“It's time for a national conversation"
I certainly agree with the last point. That is why I have spent much of the summer, so far, working on proposals to collect more tax from those with wealth and high incomes. Sixteen proposals have now been drafted. I think there are eight more still to come, although that number might still grow a bit.
As the TUC says on their proposal:
The TUC says it is publishing the analysis to “kickstart a conversation” about tax – with the TUC general secretary Paul Nowak declaring “now is the time to start a national conversation about taxing wealth”.
According to analysis commissioned by the TUC, conducted by Landman Economics, cumulative one-off wealth tax (excluding pensions wealth) on:
- A wealth threshold of £3 million with a marginal tax rate of 1.7% would yield £2.7 billion (with the tax payable on wealth above £3 million by 142,000 individuals or 0.27% of adults in the UK)
- A further wealth threshold of £5 million with a marginal tax rate of 2.1% would yield an additional £3.2 billion (with the tax payable on wealth above £5 million by 48,000 individuals or 0.09% of adults in the UK)
- A further wealth threshold of £10 million with a marginal tax rate of 3.5 % would yield an additional £4.6 billion (with the tax payable on wealth above £10 million by 17,000 individuals or 0.02% of adults in the UK).
Together this could raise more than £10 billion for the exchequer.
I am very familiar with the data that Howard used to prepare these estimates. I am also using it. And, based on it, Howard's proposals make sense.
My concerns are threefold, at least.
First, I think this would be an immensely difficult tax to administer, assess and collect. Valuation disputes would drag on for years and be immensely costly. This is not an efficient way to raise additional tax in that case.
Second, there are vastly easier ways to find £10 billion, or much more. Simply introduce tiered interest payments on central bank reserve accounts as I proposed this week and I suspect the revenue saving might be three times that from this proposed wealth tax over the next three years, with very little effort expended.
Alternatively, just remove the inheritance tax exemption on residual sums in pension funds when a person dies and considerable sums might be available. Pension pots of over £1 million have a value of at least £1,323 billion as I also showed this week. Bring even part of that sum within the scope of inheritance tax and vastly more than £10 billion a year might be raised.
I am not saying Howard and the TUC are wrong. I am saying that this conversation on tax needs to focus on what is most efficiently done. I don't think that suggests that a wealth tax is appropriate.
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“Wraith tax”… I knew we’d get to the dead somehow. 🙂
The valuation disputes point is an interesting one and I haven’t really considered it in my work so far. I think property and net financial wealth shouldn’t be too hard to value in most cases… physical wealth is the most difficult component to value. The Wealth and Assets Survey methodology may be of use here… if the ONS can produce a valuation for a survey then (hopefully) HMRC can produce a valuation for tax collection.
The TUC proposal is based on the current Spanish temporary wealth tax in terms of structure and operation, so it would be interesting to see if there have been a large number of legal disputes over valuations in Spain since that was introduced.
A beefed-up IHT, eliminating the existing loopholes, is a possible alternative, certainly. As is a reduction in interest payments on central bank reserve accounts. My view on additional taxation is that, given current underfunding of public services and social security, the sums that need to be raised just for the UK economy to function in a socially just manner are so large that we need “several clubs in the golf caddy”, i.e. a wide range of new taxes.
Howard
Thanks for the comment. How did I miss wraith?
I’d love to agree with you re valuation. My experience is valuing anything for tax purposes is a nightmare. Expect several years of dispute in anything but the most straightforward case. Most won’t be.
But, I wholly agree your conclusion. We need a whole raft of proposals.
Best
Richard
“we need a whole raft of proposals…”. Exactly.
When it comes to tax I still like Colbert’s take – “The art of taxation consists of plucking the goose so as to obtain the most feathers with the least hissing.”
If you load everything into one tax you will get a lot of hissing but, more importantly, a real incentive to avoid/evade. Taking a little piece here and there is more effective.
Of course, this merely thinks of tax as a revenue raising exercise (and blog readers will know it is so much more) but a diverse range of taxes is always best.
We agree
A quick look indicates that “the current Spanish temporary wealth tax” is an addition to an already existing wealth tax (which – again from quick look – does not seem simple), so ‘wealth valuation’ was already there, it was a matter of paying a bit more.
It is that valuation, and establishing the principle that it (wealth) is taxed, that are the difficult things – it is their absence that make introducing a British wealth tax problematic.
Agreed
There is no doubt that the rich are going to fight tooth and nail to prevent aby increase in tax on them. Their lawyers will ne rubbing their hands with glee at the thought of fights to come. There will be a proliferation of off shoring and setting up many accounts in obscure financial ‘iinstruments’
That is a waste of time now
Offshore is easy to trace now
Could you enlarge and elaborate on this please . I am currently reading Moneyland by Oliver Bullough. Ok , so it’s now five years old , but even my cynical mind can barely comprehend the lengths and complications of “Offshore” obfuscation of hidden assets . What has changed ?
Two things have changed.
Companies cannot hide because of country-by-country reporting, which I created.
Individuals are subjects automatic information exchange from most tax havens.
Tax campaigners deny this because both were negotiated via the OECD and they want to claim it is an imperialist oppressor – as I apparently was for negotiating these things. Politely they need to grow up and get a grip on reality. The work a very few of us did change the tax haven world and they deny it because their livelihoods rely on them doing so.
The valuation problem could be tricky for some classes of “wealth”. Property is easy, but shares, that’s when the fun starts. Is the valuation on the portfolio? Which might be the sensible way forward. What about years in which the portfolio tanks? I’m not saying don’t do it but I agree with Richards point that it will just end up causing endless disputes.
Dividends of course fall into the class of income, so not so difficult to target.
I’d go where the money is, e.g. the £40bn of interest payments by UK gov to UK banksters. Synthetic and unearned.
There is also the unanswered question: the capacity of HMRC to collect a wealth tax from, by definition, well funded individuals. Previous blogs have noted that this is a declining capacity & one that is not quickly and easily remedied. Thus perhaps a focus on land/property would more easily yeild results with minimal effort,
The problem is unusual properties, collections, art, private companies and the like. All are open to massive disputes. I have been there….
Possibly stupid question – does the statement about the rich paying more tax allow for the impact of VAT and indirect taxes? The Tufton St mob are fond of just focusing on income tax and ignoring taxes that are a greater proportion of the taxes paid by lower paid people. And thats before we get into the many forms of tax reduction/avoidance/evasion used by the rich.
I have allowed for all direct taxes
We know VAT is regressive – whatever the IFS have tried to claim by defining it proportionally to spending and nit income
My work goes far beyond income tax.
I’m minded to say that the successful implementation of any of you two guys tax ideas needs a step back to recognise that the vast majority of people in the UK don’t really understand the basic premise for tax because they still live in the Stone Age with money sort of grafted on as an afterthought. To best illustrate this look up Margaret Thatcher’s 1983 Tory Party conference speech where she ignorantly proclaims the government has no money of its own.
As Richard repeatedly and rightly reminds us money is simply a promise. It’s a complicated promise though. We use it because it works very well to help ensure promises are kept but also we want the the unit of account in which it’s measured to stay stable in value which of course taxation and other government charges help achieve. It’s this two-fold understanding we desperately need to get over to our fellow Stone-Age citizens to make the implementation of taxes, etc, being seen less of a bogey-man!
Howard and I are discussing ideas and meeting in early September…..
My view on all this is that better to target the money where it is stored rather than as dispersed as assets – as noted in other posts the rich are the biggest savers – or should I say ‘wealth accumulators’ only because they earn in such excess amounts – so I back Richard in that sense.
I can’t add to this discussion on a technical level – I simply don’t have the knowledge.
What I can say from a purely moral point of view is that many of the vastly wealthy have done very well from Covid and the financial crash, as a result of huge iinjections of money by the state. The same could be said for the established wealth of those who benefited from the first and second world wars. As such they owe the rest of us a fair contribution. Many of the same people educate their children privately and source their medical attention privately too. Sunsequently some believe that they owe the state nothing neatly forgetting the roads they and their employees use, the schools their employees are educated in and on and on, you get the picture.
“Alternatively, just remove the inheritance tax exemption on residual sums in pension funds when a person dies”
Really? You’re not kidding? There is an exemption on pension funds? Wow!
Surely these monies were saved to be spent-and-taxed later just as a current account is saved money to be spent-and-taxed later.
I write this understanding the obvious answer to “Why not?”, but if all money left after a death, pension pot or not, was amalgamated on death and then taxed accordingly, wouldn’t the political choice on tax rates be one choice and would be universal?
I have an alternative, but I don’t think it’s got legs… If (best estimate) 97% of the government’s spending returns to the Consolidated Fund eventually, then 97% of *all* money saved in the deceased’s estate should be returned to the CF straightaway, as the recipient has no further use for it. If the kids are looking forward to the money, give it to them using the *lifetime gifts* rules.
The 97% idea at least aims to inhibit the hoarding of “spending power” in the economy (“savings are bad” and “spending on needed resources is good”) and might even help the fight for improved State support to the retired (says this pensioner).
Pension rules used to be retire, buy an annuity, lose it if you die early.
Then Osborne permitted pension gaming and created opportunities for tax abuse.
What I am sayng is really not radical and still lets some of the fund pass to heirs – much better than I ever expected to be possible.
I might have read this here at some time, but doesn’t the abolition of inheritance tax and its replacement with capital gains tax from the inheritors make the most sense? Or is it too open to abuse to be worthwhile?
It is a partial solution to some issues in IHT, but not all of them.
Oh dear! Do you mean I’ve got something to be grateful to Osborne for?
My husband died six months after he reached pension age. If we’d taken out an annuity, I would have ended up having only half the pension I have now, because we did draw-down instead which meant all the pot transferred to me.
Did we do wrong? Were we gaming the system? Even the draw down amount is only half my state pension, so it’s cleft stick whichever way I look at it, but now I have to be grateful to Osborne for that pittance?
Before him that would not have been allowed is all I am saying
But he also have inheritance tax exemption and that makes no sense – which is the but I am criticising
Yes, I realise that, Richard. I think I was being sarcastic or ironic, not sure which.
I refuse to be grateful to him anyway.
I, and lots of other people, would have been much better off if it wasn’t for his austerity. So I’m not going to be grateful to him for making millions poorer.
That sounds more like you!
If as I do you start from the point of view that as Ruml (1946) said “Taxes for revenue are obsolete” any proposal for a new tax or to raise an existing one should start by saying what problem you are trying to solve. What is the purpose of a wealth tax if it is nor needed to raise revenue?
It is required to tackle inequality, ratify the value of the currency, to reclaim money spent by the government and as a part of fiscal policy I.E, reorganising the economy.
Other than reducing inequality all taxes do these things. So if the objective is to reduce inequality start by removing all the tax advantages, dividend rates v income tax rates, pension rules etc. which cause the inequality in the first place.
Agreed
I think a wealth tax, despite all the difficulties of implementation, would send an important message that the government is serious about tackling inequality.
I do not deny it.
But there are better ways to deliver that message.
As far as I can make out ‘Pre Roman’ Jewish Societies had various mechanisms, including a ban on Usury and Jubilees to try and prevent the accumulation of excessive wealth.
Things like Inheritance and Wealth tax to some extent serve that purpose.
Michael Hudson has written on this (and the consequences of not doing so), in ‘…and forgive them their debts’ and other works.
Something else I came across was that there was in 2020 an unofficial Wealth Tax Commission – see https://www.ukwealth.tax/ – that asked and investigated the question ‘Should the UK have a wealth tax?’, and is perhaps a starting point for those who wonder whether the answer should be yes (even if in the short term it’s totally impractical).
Great post Richard.
I look forward with anticipation of you publishing your 18 or more proposals which, if as eminently sensible as your posts are, will be welcomed by all of us here.
Thanks
I might be making a mountain out of a mole hill here, but uncollected taxes do contribute to inflation as the uncollected tax sloshes around the financial system and gets used (for example) in speculation and its associated bubbles.
But the big thing for me is how that uncollected tax can be used to support vested interests and how that corrupts our political and democratic system.
I see the name ‘Osbourne’ mentioned above and the more I think about it, the more the 2010 Tory party actually chose to make the rich richer and made sure that the rich knew it too. That reinforced the fidelity of the feudal fealty system that exists between the Tories and the rich (and perhaps it applies to New Labour in the 1990s).
If the principle that tax should be paid is one aspect of tax that is undersold to the public, the other is the feudal fealty between politics and our ‘establishment’.
Government is for all – not just to make those at the top richer. That is what has failed in Britain – and that failure I think started in 1997, on a trajectory that began in 1979 with Thatcherism.
This whole thing about tax is about being too relaxed about not getting it paid. Are you listening Laboured?
Because unpaid tax gets used to cause mischief – supporting moribund political parties and ideas, bent think tanks, arms deals , anti-environmentalism and other rentier crap.
We cannot just let have vested interests have all the money they want because they cannot be trusted with what they will do with it.
Fact.
You hit a real and important issue – the tax gap
Controlling it is vital for the reasons you note
I have to agree with Richard. If he says there are better ways to deliver the revenue, then by all means. But, I also agree that delivering a narrative of righting social iniquity is an important component of a wealth tax. The economic laity, of which I am one, understand the rhetoric of a wealth tax. Get the Tories out. Then do what has to be done. Laying the ground for wide acceptance of _something_ like a wealth tax is important. This conversation needs to be widely distributed. Keep it up.
Isn’t the interest paid by government to banks only of significant concern recently. It wasn’t being spent a couple of years ago – and hopefully it will fall soon when base rate comes down. By all means re-write the rules to save the new current expense and to stop base rate rises enriching bankers in the future.
If one of the purposes of taxation is to help regulate inflation we need to recognise that our strength as an economy is also regulated by another method and that is, unlike our own country, the refusing to allow a free trade in your currency. China does this to achieve price point in global markets. All foreign currency coming into the country has to be exchanged through state owned banks which suck some of the value out to buy the treasury bonds of their target export countries. This has the effect of allowing the target countries to help maintain their currency value and buy more Chinese exports. The irony of course for the UK is that British imperialism required a high level of funding so government added debt creation to credit creation and did this through the creation of treasury bonds it also skewed its tax revenues to indirect means to make the imperialism more palatable.
http://financeandsociety.ed.ac.uk/article/view/3017/3999
Schofield
‘If one of the purposes of taxation is to help regulate inflation’.
It’s not a question of ‘if ‘. It is a fact as far as I am concerned. The money sloshing around has to be used up or destroyed.
I see the money supply as water pouring into and sloshing around a bucket. If you don’t empty the bucket, it starts to overfill and spillover in an uncontrolled way. That’s my way of explaining inflation.
What you need to do is get rid of the water in an ordered way – tip it somewhere where it stops spilling over and being wasted, destroy it intelligently by taxing it (soaking it up) or into savings.
It is well known that when a market senses latent spending power it sends prices of assets up or over values goods and services.
The bit I am not sure about is the boom and bust cycle in our economy. I cannot scientifically say this but I am certain that the low tax regimes we have for wealth are a contributory factor to speculative bubbles that have created inflation and then recession.
In other words we suffer because we allow to much freedom for wealth to play with their money – particularly their uncollected tax.
The myth of low taxation and trickle down from the rich has caused a lot of damage and is one of the biggest causes of our economic problems.