On Question Time last week, Zack Polanski, the Green Party leader and erstwhile boob-whisperer, declared that there is no evidence that the wealthy leave Britain because of wealth taxes. A bold claim, and a wrong one. It’s also revealing, symptomatic of a growing belief on the populist left that Britain’s problems could be solved if only we shook the ultra-rich’s pockets a little harder.
Polanski assured the audience that a wealth tax would only fall on those with more than £10m in assets – as if this made it both morally tidy and economically painless. Unfortunately, history and basic arithmetic disagree. France tried almost exactly that, with a rate charged on individuals ranging from 0.5 per cent to 1.5 per cent on assets over €10m.
For all the rhetoric about ‘justice’, a wealth tax is less about fairness and more about theatre
The outcome was not a revenue boom, but a mass exodus of the very taxpayers it targeted. Between 2000 and 2016, some 60,000 millionaires upped sticks. The impôt de solidarité sur la fortune (ISF), or solidarity tax on wealth, contributed just two per cent of tax receipts during its lifespan.
Eric Pichet, a French economist, estimated that the ISF cost his country twice as much revenue as it generated. By 2017, Emmanuel Macron had slashed it to stem capital outflow and revive growth.
But the appetite for ‘one last raid on the rich’ has proven hard to kill. This week, the Institute for Fiscal Studies (IFS) suggested that Rachel Reeves could mount a one-off wealth tax to help plug the £30bn black hole in Britain’s public finances. The IFS called such a move ‘an economically efficient way’ to raise fund.
Yet in the same breath, the think tank admitted what experience already shows: recurring wealth taxes drive out capital and leave countries poorer. It warned that the UK is now ‘increasingly reliant on a relatively small number of taxpayers for a large share of revenue’, and that these individuals are ‘more internationally mobile and responsive to tax changes’. Quite so. The very logic that undermined France’s ISF would apply with equal force to Britain.
Even a supposedly ‘one-off’ wealth grab would not escape that problem. Once a government has shown it is willing to confiscate capital in an emergency, investors assume it will do so again. A single raid quickly becomes a standing risk premium on the entire economy. The IFS may imagine that a one-off levy would be credible, but markets would read it for what it is: a signal of panic, not prudence. Capital would start running for the door before Treasury accountants had even sharpened their pencils.
Ironically, the IFS itself warned against ‘half-baked fixes’ and ‘directionless tinkering’. Yet a one-off wealth tax would be precisely that – a supposedly bold gesture doing long-term harm.
The idea that ‘the rich can’t just move’ is fanciful. Polanski mockingly used the notion that the Duke of Westminster could not ‘move half of Mayfair’. He should have done his research. The Grosvenor Estate this year sold a 25 per cent stake in its holdings to Norway’s sovereign wealth fund. Assets can be restructured, relocated or sold faster than politicians can draft new tax codes.
Wealth is mobile: since Labour entered office, a millionaire has left the UK every 45 minutes. Capital crosses borders. The idea that the rich are nailed to Belgravia’s floorboards is for the birds.
Even when wealth cannot be physically moved, it can be legally shielded. Trusts, offshore accounts and corporate structures allow beneficial ownership to be altered legally and almost undetectably. Already 236,500 properties in England and Wales are hidden in trusts, valued at about £64 billion.
A serious wealth tax would require a Herculean bureaucracy: a modern-day Domesday Book, constantly updated, valuing everything from private companies and artworks to family homes and farmland. The cost and complexity of enforcement would dwarf any plausible revenue. It’s not a coincidence that in 1990 twelve OECD countries had net wealth taxes. Today only three remain.
Administrative hurdles are compounded by uncertainty. Asset values fluctuate daily. Determining the ‘wealth’ of an entrepreneur whose net wealth lies in a start-up’s paper valuation is more guesswork than taxation. Valuations are subjective and contentious. HMRC struggles to assess inheritance and capital-gains liabilities. Imagine doing that for every wealthy household every year.
Then there’s the moral argument. A wealth tax is effectively double taxation. The money that buys a home, shareholding or small business has already been taxed as income. Taxing it again discourages savings and investment, driving people to consume rather than build capital. For a country that urgently needs long-term investment and entrepreneurship, this is economic self-harm.
Proponents like to claim that such a tax would make the ‘super-rich’ pay their fair share. But they already do. The top one per cent contribute about 29 per cent of all income tax in the UK – more than the bottom half of taxpayers combined. This not a system letting the wealthy off lightly. Meanwhile, about 6.5 million working-age adults are economically inactive (having already taken away the 2.5m long-term sick). When a small, productive minority shoulders the vast majority of the tax burden, calling for yet another levy on them is not ‘progressive’ but parasitic.
Supporters of such a tax can wave away these facts with appeals to emotion. The rich have broad shoulders. They can afford it. But decades of evidence show wealth taxes rarely hurt the super-rich, who can relocate or restructure wealth, and instead often ensnare the merely comfortable. In Britain, where property prices are stratospheric, a London homeowner with a modest flat could easily find themselves labelled a ‘millionaire’ on paper, even when struggling to pay the bills. The line between the ‘super-rich’ and ‘middle-class homeowner’ is thin once bureaucrats start drawing thresholds.
The international trend could not be clearer. Countries that once embraced wealth taxes have all abandoned them after finding that capital flight, administrative costs and negligible revenue outweighed any notional fairness. The OECD’s own reports conclude that such taxes have yielded relatively minor revenues and can often distort savings and investment decisions. In short, the evidence is overwhelming, but just not in the direction that Polanski imagines.
Nor are wealth taxes a justified response to today’s fiscal pressures. The UK already faces its highest tax burden in seventy years, heading towards 37 per cent of GDP by 2026/27 under current forecasts. Debt hovers around 100 per cent of GDP. Public spending remains bloated, productivity stagnant and growth anaemic. Conjuring up new taxes on an unpopular minority is a clear temptation. But it’s economic snake-oil. Punishing capital accumulation won’t make Britain richer but poorer, as investors, entrepreneurs and high-skilled workers take ideas and assets elsewhere.
Of course, if Polanski feels as though he should pay more tax towards ‘our’ NHS and ‘our’ schools, he can. The Treasury happily accepts voluntary contributions. The annual total of such moral gestures remains vanishingly small. The silence of such chequebooks speaks volumes.
A serious debate about tax fairness should start with reforming what we already have, not inventing new instruments of envy. Simplifying the tax code, lowering barriers to work and rewarding investment would do infinitely more for the economy – and for public services – than trying to squeeze a few symbolic billions out of a vanishingly small pool of wealth.
For all the rhetoric about ‘justice’, a wealth tax is less about fairness and more about theatre. It allows politicians to sound virtuous while avoiding the harder conversation about spending restraint and growth. The French learned the lesson the expensive way. Britain would do well not to repeat it.
The Greens and their allies may imagine they’ve discovered a new moral frontier. But they are panning for gold in a river that’s already been dredged dry.
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