Downing Street flirts with wealth tax despite exodus fears
The UK’s unprecedented exodus of wealthy people could be set to accelerate after the government opened the door to introducing a wealth tax, following calls for such a move by former Labour Party leader Neil Kinnock and a host of union leaders.
Chancellor Rachel Reeves has all but conceded that taxes will have to rise in the autumn in order to fill holes left by U-turns on welfare reforms and winter fuel payments, with further downgrades to growth prospects also likely to test her fiscal rules.
A Downing Street spokesperson refused to rule out a wealth tax when pushed by journalists on Monday, saying: “We have repeatedly said those with the broadest shoulders carry the greatest burden and the choices we have made reflect that.
“We are committed that the wealthiest in our society pay their fair share in tax.“
The spokesperson added: “I’m not going to write a future budget for you now.
Education minister Stephen Morgan separately said on a morning media round: “I hold dear the Labour values of making sure those that have the broadest shoulders pay more tax. I think that’s absolutely right.”
Wealth tax rumours swirl
The government’s decision not to rule out a tax on wealth comes a day after Kinnock said a two per cent tax on asset values above £10m could generate north of £10bn a year in revenue.
“The appearance has been given that they are bogged down by their own imposed limitations,” Kinnock said, referring to strict fiscal rules that prevent borrowing from spiralling to fund public services, which would in turn spook bond markets.
“There are ways around that, ways out of it, pathways that I think people are willing to explore and actually would commend themselves to the great majority of the general public.
“They include, for instance, asset taxes in a period in which for the last 20-odd years in the United Kingdom, like quite a lot of other Western economies, earned incomes have stagnated in real terms while asset values have zoomed.
“They’ve just gone through the roof and they’ve been barely touched.”
The former Labour leader echoed calls made by backbench Labour MPs in the aftermath of the welfare reform fiasco.
Maxwell Marlow, director of public affairs at the free market think tank Adam Smith Institute (ASI) said the tax would “drive out investment and jobs” as he described the tax as “economic folly dressed up in fairness”.
“It would also impose eye-watering administrative costs on HMRC,” Marlow said.
“Assessing, valuing, and collecting annual taxes on everything from private businesses to family homes would require an entirely new bureaucracy, swallowing up resources that could be better spent enforcing existing tax laws.
“The exodus of capital from the UK is already gathering pace. If the Government introduces a wealth tax, that trickle will likely become a flood.”
A number of union leaders appeared to support Kinnock’s intervention, with Unison and Usdaw appearing to suggest it would be a better way of generating tax receipts.
A Unite spokesman told the Telegraph: “Unite has led the campaign for a wealth tax inside and outside the Labour Party. A 1 per cent wealth tax on the richest 1 per cent would generate £25 billion.”
Wealthy ready to leave
Advisers inside Downing Street have reportedly warned the government against fresh levies on the rich amid concerns growth plans would be undermined and tax receipts would decline in the long run.
The government is reportedly considering rowing back on abolishing the non dom regime over fears wealthy investors were leaving the UK en masse, reducing investment in key growth sectors.
The Centre for Economic and Business Research suggested that the UK would begin to lose tax receipts if just a quarter of former non doms left for Milan, Dubai and other destinations.
A recent report by former Treasury economist Chris Walker suggested that at least ten per cent of non doms had left the UK.
Separate research by Henley and Partners estimated some 16,500 millionaires would leave the UK this year, the highest percentage of any country in the world.
According to various estimates by economists, Rachel Reeves will have to raise taxes by more than £20bn to make up for costs brought in by government policies and turmoil in bond markets.
Tax experts have warned that introducing a wealth tax would be complicated due to the already-high tax burden on UK businesses and individuals while implementation failures seen by countries including France and Spain provided warning signs for countries considering a new levy.
Shadow chancellor Mel Stride said: “Labour’s attack on business and wealth creation has already seen scores of wealthy taxpayers leave the UK. Now they appear to be gearing up for fresh tax raids to pay for their costly u-turns.
“Under Labour, nothing is safe – not your pension, not your savings, not your job. Rachel Reeves must come clean.”