Markets are for the moment very forgiving, but it will not ever be thus. Wealth taxes therefore make an obvious target. But how desirable, and indeed practical, are they in the flesh?
In answering this question, I’m drawing heavily on analysis aired by Arun Advani, assistant professor of economics at the University of Warwick, Emma Chamberlain, a leading tax lawyer, and Gus O’Donnell, a former Cabinet secretary, at the recent launch of an Institute for Fiscal Studies inquiry into the case for wealth taxes.
There have been many past attempts at them in Europe, but only in Switzerland has a comprehensive wealth tax achieved any success in raising decent sums of money, and that’s possibly because Switzerland doesn’t impose much in the way of inheritance tax.
Almost everywhere else, wealth taxes have been largely abandoned because of the challenges of valuation, administration and the fact that many apparently wealthy people, though asset rich, are income poor.
Interestingly, there have also been two goes at it in the UK, once under Lloyd George’s 1909 “People’s Budget”, which imposed unprecedented taxes on the land and income of the wealthy to fund new social welfare programmes (sound familiar?), and then by Denis Healey in the mid-Seventies. The same problem bedevilled both attempts.
Healey observed in his memoirs that he found it impossible to design a tax that would raise enough money to cover its administrative costs. Maybe Boris Johnson and Rishi Sunak will find a way, but I’m sceptical. In any case, to be taxing wealth at a time when the country desperately needs to be attracting talent and investment to bolster its post-Covid, post-Brexit economy doesn’t obviously make sense, even if it appeals to their new Red Wall taskmasters.