Ross Clark

Labour’s wealth tax proposal is deeply flawed

Labour’s wealth tax proposal is deeply flawed
Labour leader Keir Starmer, Picture credit: Getty
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Will Labour ever stop pushing for punitive taxation? Not content with gifting the Conservatives an 80 seat majority in December, the supposedly more moderate Labour party under Keir Starmer is already dreaming up ways it can extract large sums from our pockets. Shadow Chancellor Anneliese Dodds floated a ‘wealth tax’ at the weekend, so that the burden of paying for the Covid 19 crisis might fall upon the ‘very best off people’.

Except it won’t be the very best-off people who get whacked by a wealth tax, as she should surely know. The highly mobile global super rich wouldn’t hang around for five minutes after a Labour government announced a wealth tax – any more than they did in France when Francoise Hollande introduced the same thing. The burden would end up falling on grafters who have spent a lifetime saving and investing to earn a decent and independent retirement.

Dodds – along with former civil service chief Gus O’Donnell, who called for a wealth tax in a speech to the IFS last week – may well feel emboldened by a recent YouGov poll for the Tax Justice Network, which claimed that 61 per cent of the population would support such a tax on individual wealth over £750,000, excluding pensions and a person’s main home. I can imagine six out of 10 people supporting such an idea when faced with a man with a clipboard in a shopping centre, but I doubt they would be so keen when faced with the iniquities and logistics.

Why should someone with a large pile of cash or shares pay a levy on their wealth when someone with a mansion and a large pension could escape it? In practice, of course, people would avoid it by stuffing more money in their pension and moving to a bigger house. Or maybe Dodds – who gave no details – is thinking of taxing everything: houses, pensions and all. In that case, there are going to be a lot of people who will baulk at a wealth tax when they realise how much their homes and pensions are worth. A tax on net wealth in excess of £750,000 would catch 16 percent of the population, including pensioners on low incomes, whose savings have been earning them next to no income. They are already paying a kind of wealth tax in the form of negative real interest rates.

Then there are the logistics. If it was going to be effective, a wealth tax would have to apply to every last ornament, painting, musical instrument – otherwise people are going to avoid it by emptying their bank accounts and stuffing safety deposit boxes with stuff beyond the reach of the taxman. It is easy enough to look up your bank account, or value your share portfolio. It would be relatively straightforward, too, to value homes – although no government has attempted a revaluation of properties since 1991. But who is constantly going to value all the other stuff? Is someone from HMRC going to be sent around your home to poke about, from the mantlepiece to the loft, and put a value on everything from Aunt Agatha’s cow-creamer to the nice Canaletto in the drawing room? Has Labour thought what a wealth tax would cost to enforce?

I suspect not. As a way of rallying disenchanted Corbynites, a wealth tax has value. But it is a horribly flawed concept which underlines Labour’s impoverished ideas box.