A WEALTH tax would hurt economic growth, drive firms away from Britain and fail to raise anywhere near enough money to solve the government’s financial problems, an array of City leaders argued yesterday, attacking Nick Clegg’s proposals as “the politics of envy”.
Chancellor George Osborne also dismissed the deputy Prime Minister’s attempt to revive the Liberal Democrats’ favoured mansion tax, arguing that a heavy-handed approach could “drive away the wealth creators.”
Clegg is planning to push his coalition partners hard to raise taxes on the rich instead of trimming government spending, in the hope that new levies will be announced in the budget.
But City brokerage Tullett Prebon rejected the plan as “a petulant gesture ahead of the party conference”.
“The main problems with wealth taxes are that they raise little for the Treasury, and they send a message that Britain is hostile to success,” said Tullett Prebon’s Tim Morgan.
And that message could easily drive mobile global firms away from the UK, according to lawyers Wedlake Bell.
“There is likely to be another exodus of wealthy individuals if Nick Clegg manages to introduce a wealth tax,” said partner Camilla Wallace.
“Any introduction could also undo benefits from the recent reduction in corporation tax.”
Accountancy firm RSM Tenon added that the tax would be extremely complicated in practice.
“A wealth tax is a very ill defined concept and its impact can be arbitrary and lack consistency and ultimately fairness. It poses many significant challenges in design and collection and will impose a significant cost to government in administration and design,” said head of tax Paul Belsman.
The deputy Prime Minister also told the Guardian “we need to do more to probably bypass the broken banking system altogether – maybe looking at establishing a business lending bank with direct or indirect support from the government.”
Liberal Democrat sources told City A.M. that the party is “looking at all the options to get credit flowing and the economy moving” – and that could even mean converting one of the state-owned banks RBS and Lloyds into a national investment bank.
However Osborne is not thought to favour such a move, preferring the current plan of running the banks as commercial entities before privatising them in the coming years.