Fraser Nelson Fraser Nelson

The dangerous attraction of wealth taxes

I’ve written about the deceptive attraction of wealth tax in my Telegraph column today, and I wish I was wasting my time. Once, you could say it was an idea so flawed that it stood no chance of getting into government. In the coalition era, there is no such thing.  Tory ministers will wave through an idea they regard as nuts because the Lib Dems want it, and that coalition is about compromise. Political horsetrading has supplanted rational economic debate, and if the Lib Dems want a wealth tax there is a horribly high chance that Osborne may give way — as he almost did over Mansion Tax. Not because he is weak, but because that’s how this coalition works. Here are my main points.

1. The idea of a wealth tax is superficially attractive. You pick something — property, or even all assets — and say that the state will take 1 per cent of the value of this every year. And you use the money to cut taxes on income. It seems fair, as wealth is certainly distributed far less equally than income, and use the money to help the low paid. Two of writers whom I greatly admire, Tim Montgomerie and Janan Ganesh, have spoken in support about the general idea, and I can see what attracts them. As Tim tweets: would I rather save the money of a £2 million homeowner, or give it to a striver? It’s a no-brainer: if that were a genuine choice, I’d tax the rich guy and lift the burden from the poor guy. But taxes never quite work out the way you think.

2. Denis Healey agreed with Tim Montgomerie when he was Chancellor, and his experience is instructive. A wealth tax (a kind of Mansion Tax writ large) had been on Labour’s wish list since the 1950s and was in its 1974 manifesto.

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