No, Lord Kinnock, a wealth tax is a dreadful idea
My poor laptop was covered in hot coffee this morning, watching Lord Kinnock prescribe a 2% wealth tax on assets over £10m to Trevor Philips on Sky. Followers of the ASI will be familiar with our views on wealth taxes - they don’t work. But it’s worth having some perspective on this matter in particular.
A 2% tax on all assets over £10m is a patently absurd idea. In the first instance, it would make the UK one of the most over-taxed countries for wealth in Europe. Spain’s highest wealth tax rate is 3.5% over €700,000 of stocks (not total assets), whilst fabled Norway only leverages 1% on stocks above €150,000 - it is worth reiterating that our proposed wealth tax would be on total wealth, not just stocks or net wealth.
In the second instance, the UK is currently experiencing a wealth exodus. From the estimated -16,500 liquid millionaires leaving this year according to Henley & Partners and New World Wealth, to the UBS report which has seen a decrease in the number of liquid millionaires in the UK, all the way through to the fact that the UK’s Gini Coefficient falling by 2 points. It is not uncontroversial to say that the wealthy are leaving the UK - do we think that this tax would accelerate or reverse this exodus (no points for the correct answer)?
Then there is the third problem with this idea - how much would it raise? Tax Justice Network, citing Advani, Hughson, and Tarrant, claim that it will raise £10bn. This is highly unlikely - even though Adani et al’s take into account a potential avoidance rate of 17%, the ongoing exodus shows most assumptions cannot be relied upon. It is also the case that the ONS’ data (on which their paper is based) is known for being notoriously unreliable - this is no fault of the authors, but it does add additional complexities and uncertainties onto what would be a very big and expensive bet.
Most wealth in the UK is tied up in property values, which have surged in wealth over the past 20 years. UBS’ report explains as much, whilst also noting that Brits are saving more than ever, and avoiding investing in the economy. Property-market watchers will note that it is very difficult to shift houses, especially those at the top of the chain. If this tax were to be enforced, a mass sale of illiquid asset classes in a constrained market, where demand falls owing to the new tax-implications of owning said assets, could result in refunds coming from HMRC as prices fall.
We can also learn from experience. It is widely acknowledged that wealth taxes don’t work - this is why more countries have abandoned them than have maintained them. We have very high wealth-adjacent taxes on property (stamp duty), shares (capital gains tax), transactions of capital (stamp duty share tax), and on estates (inheritance tax). With the rich paying more tax than ever, and leaving, the wealth tax would only squeeze them out further.
A wealth tax is not just a bad tax. It is a uniquely terrible tax, a la rent controls. One that should be consigned to history, and kept far away from the hallowed halls of Whitehall.
Maxwell Marlow
