Wealth tax would take years to set up, Labour warned
The introduction of a wealth tax would take years to set up as well as substantial investment in “additional personnel” and tools to track assets, a leading City bank has warned.
Cabinet ministers including Keir Starmer have refused to rule out a wealth tax in the last week, with the government preparing for a revenue-raising exercise in the autumn to rebuild Chancellor Rachel Reeves’ £9.9bn headroom.
Deutsche Bank’s Sanjay Raja said the introduction of a wealth tax would be “extremely difficult to implement effectively, efficiently and equitably”, putting public finances at further risk.
The top City economist suggested a tax rate of 0.25 per cent on private pensions on the top 10 per cent of wealth would raise £5bn while targeting net property wealth could bring another £5bn.
He also said the government could decide to impose a taxable threshold of £1m per household, raising £7bn.
But Raja warned that the calculations were “static simulations” without accounting for the likely departure of capital and behavioural changes.
“Issues around asset valuation – accurately valuing assets like private businesses, property, etc. – makes it difficult, complex, and costly,” Raja said.
“Imposing a wealth tax requires significant upskilling, infrastructure capacity, and personnel to implement effectively and fairly.
“There’s also the issue of avoidance and evasion, where taxpayers may divert assets away from their home country to lower their wealth tax cost.
Political problems
Several Labour backbenchers have declared their support for a wealth tax, with leftwing think tanks claiming it would make the national system fairer.
A YouGov poll said that it had the support of three quarters of the population.
But Raja suggested its introduction would be less politically popular than presumed if it came into effect.
“On paper, while some households may be classified as ‘wealthy’ or meet the threshold for a wealth tax, in reality, they may lack the cash to pay any tax liabilities given the illiquidity of assets or wealth.
“Politically, therefore, it may prove difficult to push through any meaningful wealth taxes.”
Raja pointed to failed trials in France, which led to warnings that the economy would lose 200bn euros, and Sweden, where capital flight and enforcement caused problems for tax authorities.
He added that it could take “years” for it to be set up properly, adding to comments made by London School of Economics professor and policy proponent Andy Summers, who said there was “zero chance” a wealth tax would be introduced.
Summers, who co-authored a report on its design for the Wealth Tax Commission, told Bloomberg last week the government would need to collect information on wealthy people in London, which it currently did not do.
Some think tanks have instead called for a more targeted wealth tax such as in the form of a land value tax, which they believe would be easier to calculate and collect.
Proponents of the idea claim the tax would also incentivise investment into housebuilding in the UK as it would be based on the value of land rather than the size of property sitting on it.