I noticed this in the FT yesterday:
Downing Street has declined to categorically rule out imposing a “wealth tax” on Britain's richest people after former Labour leader Lord Neil Kinnock said such a levy was a good way to fill a growing hole in the public finances.
Chancellor Rachel Reeves is under mounting pressure to raise taxes after last week's £5bn retreat on welfare savings despite having ruled out a wealth tax on several occasions, including in April this year.
I would love to think that Labour would understand that a wealth tax really does not make sense when there are so many other options available to them, as I demonstrated in the Taxing Wealth Report.
However, hysteria appears to be sweeping over those campaigning on this issue, and I got terribly excited emails from 38 Degrees and others yesterday on the prospect of having a wealth tax, no doubt written by people who have not the slightest idea about what such a tax would involve, and why it would be almost impossible to operate.
There is a reason why I no longer work with most tax justice campaigns. Unfortunately, unlike the early days of tax justice campaigning twenty years ago, very few of those now involved have any real understanding of the issues about which they spend their lives talking. The problem is particularly acute in the case of the Tax Justice Network, but it is fairly common just about everywhere.
We unambiguously need to tax wealth more in the UK, but taxing stocks of wealth as opposed to flows of income, profits, and gains derived from it is exceptionally challenging. That difficulty might be worth accepting and addressing if income from wealth were already taxed fairly, but it is not. There can be no moral, ethical, economic or technical justification for taxing income from wealth less than that created by work. However, income from wealth in the UK is at present invariably taxed at lower rates than income from work. As a result, addressing this straightforward issue so that a new balance where income from work is taxed less than income from wealth, and at the same time, appropriate benefits are paid, should be the highest priority of all those concerned about this issue. Why it isn't, defeats me.
This is, I am afraid to say, a case where student union politics appears to be in play just when the left really could do without them. And I know I will make myself unpopular for saying so, and I do not care. This issue is too important.
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I fear the cold hand of Arun Advani behind this, the very same man who co-authored an analysis of what level of extra income removing non-dom status would bring the Exchequer.
But this is deeply neoliberal thinking by the government. They see a pot of money in the possession of people who are poorer than they are and think that they can just take a bit off the top.
It is also Piketty, and Gabriel Zucman and others, none with any ral world experience of tax.
Have you ever met Arun, Lucy? Any reason for picking him out in particular for your brickbats, rather than say Andy Summers? They are both actually quite smart, engaging and modest guys. I have no doubt they will be looking at the impact of true non-dom changes to see how the reality measures up to their predictions. That will need real data, not the anecdotes of wealth advisers or the number made up by the likes of Henley. So we won’t have that for another couple of years at least.
They both also co-authored the report of the so-called Wealth Commission which said “we recommend that instead of an annual wealth tax, the government should reform existing taxes on wealth. Many existing taxes on wealth have major structural flaws, and recommendations for improvement have come from many sources.” Hard to argue against that.
We can change the way that the rates of income tax and NICs disadvantage income from employment and self-employment over dividends and interest. We can change the way that capital gains tax advantages returns taken as gains over income. We can change the way that, for many people, inheritance tax became almost optional.
The criticism that they are theoreticians without real knowledge of how taxes actually work is valid. I have met them.
Very disappointing.
“Tax it when it moves!”
(Not when its hiding in the long grass)
Just increased income tax on both wages and unearned income (this is non-wage income in the USA).
As Our Fearless Leader has said many time, a wealth tax is very difficult to calculate and even more difficult (if not impossible) to collect.
If the ‘Tax Man” wants to spend his time researching something, he should delve into researching a USA style property tax to fund councils.
The Wealth Tax is being put in play, partly because it is designed to be a straw-man argument that will be derided by the Press, and then the economists will weigh-in and list an insuperable number of problems. It is being put up to be knocked down. Cynical? Me?
How to do this? I have two suggestions that will yield substantial results, are equitable and functional.
1) Apply ‘tiered reserves’ rules to reserves held in the BoE. It is the BoE that is out of line, an outlier; and operating straw-man arguments. This will yield perhaps £5Bn-£10Bn a year.
2) Move toward equalising tax on income and tax on dividend tax; withdrawing a significant part of the subsidy for those selecting to pay themselves in part in dividends and a smaller part in salary in order to maximise the tax allowances and drastically reduce the tax and average tax rate they pay. There is a case to keep the first £500 on dividends free, for the small saver (or even raise the threshold). Note that compared with Germany, France, Italy and Spain we are again an outlier; the UK is certainly not operating conventional wisdom with its current regime. The benefits in tax received for the Treasury are significant (£Bns), but depend on how far equalisation is taken, and that is one of equalisation strength’s; it is a sliding scale, and difficult for opponents to abuse the argument. Straw-man arguments are harder to stand-up, beyond the witless Express and Mail.
Thanks
This idea of a wealth tax is simply for show.
Contrary to what you suggest, it will be very easy to implement once all those who are due to be subject to it, have agreed on what they are prepared to divvy up ( of course its scope will be very limited so that no-one gets too upset). Then, of course, Government can crow about how it is tackling inequality. It will be a nice little down-payment by the wealthy, to keep most of their tax affairs away from scrutiny.
When someone like Kinnock (very wealthy) comes out in support of this type of policy, you know there must be something in it for him and his friends.
Wow, you cynic
And I do not agree
To put a positive spin on this, it is moving the Overton window significantly. Once the idea of taxing the rich more becomes generally accepted, it is an easy step to point out there are better ways to achieve the same result. So my suggestion is that we let ‘wealth tax’ gain momentum, then hijack it when the time is right.
I am amused by that
My thought too. “Decline to rule out” is hardly a statement of intent, but it does imply the government thinks taxing the wealthy more needs considering. If it means discussing how to do so sensibly becomes part of the national conversation it might become a little more likely to happen.
‘There can be no moral, ethical, economic or technical justification for taxing income from wealth less than that created by work.’
How about the fact that the wealth arises from income that has already been taxed? And any gains are no longer subject to an inflation adjustment, so actually taxes nominal gains, not necessarily real gains. Which is a discouragement to invest.
Oh dear, how very silly.
81% of UK personal wealth is in tax incentivised assets
And don’t pretend current asset values are the result of past saving – save yourself from being so stupid.
Am I being over-cynical here, in detecting an intended nil return? If a tax on wealth is introduced it will produce nothing on the grounds that Richard has explained multiple times. Howevr the govrnment will be able to say that they have taken action to tax wealth, and it wasn’t worth the effort. No cost to the wealthy, no need to worry about the donors.
It is so uncomfortable sitting next to an elephant of an evening to watch tv. You must get mention of this every day:
NIC is a tax on the first pounds of income. Hits the poorest. Why not remove and put basic rate tax up by the percentage needed to restore the income? Remove a collection industry as well.
Simple solutions aren’t but NIC is soooo unfair.
But getting rid of NIC is nightmarishly difficult…or it would have been done
What is NIC???
National Insurance Contributions
NICs were introduced as an employee taxation that was supposed to contribute to people’s entitlement to state benefits. For example, you don’t get a full state pension, currently, unless, during your working life you paid or were credited with NI contributions for 35 years. Other state benefits were also based on your contribution record.
Employers also have to pay NI contributions for each of their employees.
The introduction, some years ago, of a basic level of state support, irrespective of contribution record made it all a bit of a nonsense. But no one has found a way to unpack it.
In the UK you pay income tax @ 20% for the lowest paid plus NI @ 8%, once you reach a certain income level. As you earn more the income tax rate increases but the NI rate reduces to 2% (weird). You don’t pay it once you have reached state retirement age, but the employer pays @, currently, 15% for every employee, except the young and apprentices.
Income tax is calculated on your annual income. NI is calculated on what you are paid every time you get paid, so if you get a bonus your NI is much higher in that pay period.
It should be done away with, but no-one seems to be interested in sorting it out.
I would sort it out if I could work out how to do so…only possible if it is extended to all income…
“NIC is a tax on the first pounds of income.”
No it isn’t. The NI free allowance is the same annual amount as the income tax free allowance.
NICs are national insurance contributions, similar to social security payroll taxes in the US, paid on the earnings between the ages of 16 and the state pension age currently 66.
The idea was to have a contributory social security system (the German system perhaps the model here) but access to most benefits no longer depends on paying contributions. Access to the National Health Service for example does not depend on paying “stamp” (although that expression seems to have largely falling out of use: until 1975, contributions were recorded by putting adhesive stamps on physical cards to show entitlement to benefits). The main exception is state pensions, which are increased from a basic amount up to a higher amount if a person has a full contribution record of 35 qualifying years.
The primary threshold, when employees start to have payroll deduction of primary NICs, is currently £242 per week. That is the same as the annual income tax threshold of £12,570 per year. But employers also pay secondary NICs, not as a deduction but in addition to headline pay. And that starts (now) at £96 per week or £5,000 per year. Not quite the first pound of pay, but you can see why it is called a “jobs tax”. At the usual minimum wage of £12.21 per hour, secondary NICs now start at less than 8 hours per week, and primary NICs at around 20 hours per week.
There are also NICs for the self employed with different rates. It is in effect a second income tax paid by employees and the self employed, because it does not apply to unearned income such as interest or dividends.
Thanks
Caroline Lucas and Greens also talking about taxing wealth along with some ‘left’ MP’s – and IFS already shot it down – I keep referring people to your TW report – it may well get some traction.
Caroline doesn’t….others do, as far as I know
What is IFS????
Institute for Fiscal Studies
The Institute for Fiscal Studies (IFS) is who the BBC states as being their source that most of the government’s money comes from taxation.
https://ifs.org.uk/taxlab/taxlab-key-questions/where-does-government-get-its-money
I have contacted the IFS on several occasions asking for clarification as I feel this is not correct.
They have never replied.
Of course not: it suits them to pretend the moon is made of cheese.
Had this argument on a lefty dog walkers meet. This centred around valuing wealth commodifued as artefacts, and used the example of the Mona Lisa. One argued that you used the insurance vale, another a consensus of experts, and I played devil’s advocate and said it couldn’t be agreed on except as a board daubed with paint. Would it be feasible to value assets like that by some means? I’m deeply cynical.
Good question.
Who knows?
What I do know is that such arguments suit those opposing all taxes on wealth.
I have declined to sign the petitions 38 Degrees have sent me on this subject, and appealed to them instead to get on board with the TWR, including sending them the link. Unfortunately the idea of a “wealth tax” seems to be building momentum. I do wonder if it’s being set up to fail by somebody, somewhere.
That is my fear…
NGOs don’t want their ideas to succeed after all – they would be out of jobs if that happened
And yes, that is cynical, but not very in my expereince
Richard,
As you have pointed out before flows are easier to tackle than stocks of wealth.
Listening to Steph McGovern and Robert Peston podcast today on the Rest is Money was on the young and saving for retirement. Guest speaker was from JP Morgan.
JpM research into why people save and how people’s views need to be changed from being risk averse to being stock market confident!
I will not attempt to summarise to any great extent because of my blood pressure but suffice to say some of the orthodox narratives were alive and well:
1.Govt expenditure today is not sustainable regarding pensions.
2.People savings should move from cash to stocks & shares.
3. People are so unaware of compound interest and risk. They need help to make the right decisions ie stock market is always best.
3.Investing in Stock Markets so much more lucrative. Look at the evidence!
4. Occupational pensions unlikely to deliver a substantial pension pot.
5. Ageing population means govt will have to cut welfare and state pensions as OBR projections over the next 50 years show conclusively govt expenditure unsustainable path.
Podcast for me was a bit of a con. These two journalists both of whom claim expertise in economics were encouraging speculation. Despite a cost of living crisis for most of us.
Not a single word on how many people have hardly any savings and why this might be.
They know who is sponsoring them