As the costs of the coronavirus pandemic mount, a fierce debate is gathering pace over how the UK will pay for the measures to counter Covid-19.
Chancellor Rishi Sunak has many options. But in terms of controversy, one radical idea stands out — a wealth tax.
Advocates argue that a tax on assets would reduce inequality, shore up public finances and ensure that those with the broadest shoulders carry the greatest financial load.
However, opponents believe it would unfairly penalise savers, be hideously complicated and expensive to implement, discourage entrepreneurs and drive wealthy people out of the UK.
Opinion polls indicate general public backing for wealth taxes. But the devil is in the detail — support is typically predicated on exempting key assets held by large swaths of the population — including the main home and pensions. In other words, most supporters, not surprisingly, prefer taxes that will hit people richer than themselves.
Stepping into this growing debate, FT Money has conducted an online survey to offer readers the chance to shape the arguments.
FT readers marginally favour a wealth tax
The 1,300 people who responded are sharply divided on a future wealth levy. Exactly half of those surveyed said they would support a wealth tax — with 32 per cent definitely in favour and 18 per cent saying they probably would be.
But 45 per cent of readers opposed such a tax, with 32 per cent definitely against and 13 per cent saying they would probably not support one. The remainder were not sure.
With above-average incomes and assets, FT readers are somewhat less inclined to support wealth taxes than the general population. An Ipsos Mori survey released last week found that 75 per cent of people backed a levy on assets — with the most popular starting threshold given as £500,000.
But Arun Advani, an assistant professor at the University of Warwick, says he is “surprised” that the FT readers’ support level was only “a bit less” than in national polls. “Even among this crowd, half of them are in favour of a wealth tax.”
The FT’s findings will hearten wealth tax supporters, such as campaign group Tax Justice UK. Its executive director Robert Palmer says: “As we build back from the coronavirus crisis it's likely that taxes will have to go up to support higher public spending. It’s only right that people with the broadest shoulders should contribute more.”
The opposition Labour party, where wealth taxes have traditionally found most favour in parliament, recently expressed interest in the idea. In July, shadow chancellor Anneliese Dodds said the government “did need to look at” wealth taxes, adding: “I don’t think we’re in a fair situation.” Though she later distanced herself from the comments, saying Labour was calling for growth, not tax rises, the idea clearly has resonance on the political left.
In contrast, Boris Johnson. the prime minister, and Mr Sunak have indicated they would not seek to bring in a wealth tax. However, some tax experts warn that the cost of the pandemic could yet drive the government to increase tax on assets, even if it does not introduce a wealth tax per se. A review into capital gains tax, commissioned by the chancellor this year, suggests this could be the direction of travel.
The Institute for Fiscal Studies, a think-tank, warned this week that tax increases were “all but inevitable” once the immediate health crisis had subsided and the public finances had to be stabilised.
In the FT survey, respondents were invited to provide their names if they wished and give detailed reasons for their views. Those favouring wealth taxes focused on countering inequality and helping the country through a difficult time.
Reader Simon Radford says he would definitely support a wealth tax. “After the 2008 banking crisis it was the poor and less well-off that had to shoulder the burden through freezes in benefits and pay, the wealthy made astronomical gains and we definitely weren’t in it all together,” he says. “This time they should be made to use some of those gains to help out the people they so disingenuously clapped for being heroes during lockdown. [It] benefits a much fairer and just society.”
His views are echoed by Graham Hobson, a multimillionaire who founded Photobox, an online photo printing company, who strongly supports asset taxes, despite his considerable wealth. He would be prepared to pay 5 to 10 per cent of his net wealth on a one-off wealth tax or 1 per cent annually.
He told the FT: “I have been in the very lucky position to suffer no financial hardship during this crisis. If there is money to be spent to ease our way out of this I will be willing to pay far more than my fair share.”
However, many respondents to FT Money’s survey argued that a wealth tax would be unfair and have unintended negative consequences.
India Potts (not her real name), says: “Applying a wealth tax is . . . double taxation. People who have done well in life are effectively being punished for their success.”
A male reader over 55 with assets above £2m says: “The extra tax revenue raised will be minimal and the opportunity cost will be high, making it a pointless exercise.”
His comments are echoed by some tax specialists who say other countries have introduced wealth taxes without success. A recent article by the Personal Finance Society, the professional body for financial advisers, points to around a dozen European countries that have repealed wealth taxes, including Germany. Wealth taxes survive only in Norway, Spain, Switzerland and, in a limited way on real estate, in Belgium and France, it adds.
Second homes and financial investments in the line of fire
When it comes to choosing which assets should be hit by wealth taxes, the most popular option in the FT poll was properties other than the main residence — including holiday homes and rental real estate, backed by 21 per cent of respondents.
Financial investments — excluding those held within an individual savings account — came next, backed by 18 per cent of respondents, followed by art (16 per cent), and cash (15 per cent).
The least popular option was pensions, selected by only 6 per cent, followed by main homes, favoured by only 8 per cent of people.
Readers who supported a wealth tax often saw it as a way of redistributing wealth tied up in property.
“The biggest benefit would be the redistribution of immense housing wealth gains by the boomer generation,” says a male respondent, aged under 45, with assets below £100,000. “The cleanest way to impose the wealth tax in the UK and tackle avoidance is to impose a much higher property tax on every residential property in the UK.”
However, the difficulties of those who may be “asset rich but cash poor” are flagged as a problem by both supporters and opponents of wealth taxes.
One woman, aged 65, with assets of about £500,000 broadly favours a wealth tax on assets above £2m. “[However] if it includes home and pensions it would hit the wrong people,” she says. “I am a widow in the family home with only just enough income. I would have to consider selling and my extras would have to go. I have to work as it is, aged 65.”
Tim Stovold, head of tax at accountancy firm Moore Kingston Smith, says bluntly that the fact that there is little support for taxing main homes indicates that people want the tax targeted at the wealthy, not “ordinary people”.
He adds: “Nearly a third of the [FT survey] respondents thought that the threshold for a wealth tax should be greater than £5m. So, are we just seeing, as we often do, that tax rises are popular when people voting for them don’t think they will have to pay and the burden will fall on those considered to be more wealthy?”
A number of respondents highlighted the difficulty of valuing property and other assets.
“It is unworkable,” says one man, aged over 65. “Who is going to make the valuations and on what timescale? [Valuations] will be contested in many cases and in the end the tax will cost more to administer than it raises. People who have simple bank accounts or shareholdings will be penalised while those with properties, vintage cars, paintings, yachts, etc will escape. Will I have to admit valuers to my house? Will they have to give notice or will they hammer on the door at 4am?”
£1m, £2m, £5m or more . . . what is the right threshold?
The threshold for a potential annual wealth tax drew mixed responses. Asked what amount of net wealth, including the main home, pensions, art and all other assets, should be taxed in an annual levy, the most popular answer was none, selected by 22 per cent.
For those who selected an option, the most popular threshold was £1m and above — chosen by 19 per cent. This was followed by £2m and above and £5m and above — both selected by 14 per cent of respondents.
A female reader with more than £2m net wealth, who opposes a wealth tax, says: “Many very rich people would probably evade it by going to live abroad, or by entering into tax avoidance schemes. The not-so-rich middle class would be left to bear the brunt.”
The survey drew responses from people with differing amounts of net wealth: 17 per cent said their net wealth was below £100,000, 15 per cent said it was £2m or more.
The right rate . . . 1 per cent or 0.01 per cent?
The possible rate of a potential wealth tax split respondents. The lowest option — 0.01 per cent — was the most popular, with 22 per cent backing it. This was followed by the highest rate offered in the survey of 1 per cent — supported by 21 per cent.
However, fully 23 per cent of readers ignored the choices offered and volunteered a different figure. The alternatives ranged widely — from zero to as high as 75 per cent. Some readers suggested tiered rates tied to wealth levels. Suggestions included “10 per cent of everything above £25m”, “1 per cent on those above a net wealth of £1m but 2 per cent on those above £1bn” and “Low at bottom (eg 0.1-0.2 per cent) rising to 1 per cent for wealthy families.”
Deep doubts about boosting council tax or inheritance tax
Mr Sunak’s options for increasing existing taxes on wealth include inheritance tax (IHT) and council tax, both forms of asset tax. Reforms to both have long been under discussion.
On IHT, MPs earlier this year recommended simplifying complex rules with a cut in the standard 40 per cent rate to 10 per cent, combined with the scrapping of most reliefs including the “seven-year rule” which exempts gifts made over seven years before death.
Meanwhile, the bands used to calculate property values for council tax have not been updated since 1991 as successive governments have found the issue too sensitive to touch. FT readers are divided — perhaps suggesting that ministers have been right to be careful.
Around 45 per cent of respondents said they were definitely or probably against reforming the valuations to raise more tax and 41 per cent said they would definitely or probably back a revaluation.
Possible increases to inheritance tax were also rejected by a modest majority of FT readers. About 48 per cent said they would definitely not or probably not support an IHT increase and/or cuts in exemptions. Some 43 per cent of people said they would definitely or probably support such increases.
“It is not surprising that there is little support for council tax rates increasing, as that is a tax which everyone pays,” says Mr Stovold. “Similarly, a reduction of lifetime gift or exemptions on death for inheritance tax would cause more people to have to pay IHT so I am not surprised by the lack of support for this.”
But raising capital gains tax rates finds favour
Perhaps surprisingly, capital gains tax (CGT) was the one existing tax readers would be prepared to see increased. About 52 per cent of people agreed they would support CGT being levied at the same rate as income tax.
Currently — above an annual exemption of £12,300 — CGT is charged on most gains at 10 per cent for basic-rate taxpayers, and 20 per cent for higher and additional-rate taxpayers. The basic income tax rate is 20 per cent, rising to 40 per cent and 45 per cent for higher and additional-rate taxpayers.
In our survey, 26 per cent of respondents said they would definitely support lifting CGT tax rates to income tax rates, while a further 26 per cent said they would probably support it. In contrast, 35 per cent of readers registered their opposition — with 24 per definitely against and 11 per cent probably opposed.
Both supporters and opponents of wealth taxes backed raising CGT rates in our poll.
A woman under 45 with assets of £500,000 says: “People have already been taxed on the wealth in question. [A wealth tax is] blatantly not fair. People have retirement plans and this tax absolutely usurps those plans. Much better to raise other taxes (income, dividends, [capital gains], inheritance etc).”
Mr Advani says it is easier for people to accept that the current differential rates are unfair than to contemplate a new tax. “Capital gains is a benefit that ends up going to a small number of people.”
The fact that FT readers are ready to back increased capital gains taxes and give tentative support for a wealth tax, suggests the winds of what is considered politically possible may be changing.
However, as our respondents’ comments also show, the arguments are divisive. The path to a wealth tax is filled with political peril, and questions remain about whether such a levy would prove more difficult to implement than it is worth.
Additional reporting by Lucy Warwick-Ching
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