Conservative Conference debate: Is Britain ready for a wealth tax?

A Conservative member of the influential House of Commons Treasury Committee was unmoved on financial experts’ suggestion of a one-off wealth tax to pay for the massive public spending on dealing with the COVID-19 pandemic, at a CIOT/Institute for Fiscal Studies (IFS) debate at Conservative Party Conference.

Stuart Adam of IFS spoke first. Adam said the pandemic had led to unprecedented levels of public debt and a need to look at ways of paying for this. He was unconvinced of the merits of an annual wealth tax – but saw a case for the creation of a one-off levy, which he told guests would be ‘a very different beast’ to a yearly charge. He urged politicians to look at the ways they could reform existing taxes on wealth, saying capital gains tax, inheritance tax, and property taxes like stamp duty land tax and council tax, were flawed but that there were a lot of good things that could be done to improve them.

Adam observed that a lot of people’s wealth is related to their position in their lifecycle, that valuing certain forms of wealth is complicated and that an annual wealth tax affects savers more than spenders so perhaps it is better to tax wealth when it is spent rather than every year?

Emma Chamberlain OBE specialises in tax and trust advice for private clients, trusts and charities, works for Pump Court Tax Chambers and is Joint Chair of CIOT’s of Private Client (International) Committee. Chamberlain was a commissioner on the Wealth Tax Commission which ruled out an annual wealth tax but identified some merits in a one-off levy, which Chamberlain said could raise ‘quite a bit of money’.

Chamberlain said an annual wealth tax has all sorts of valuation and liquidity problems and spoke of the sheer administrative complexity of it especially with the current capital gains system. She put forward a one-off wealth tax with one valuation date that people could pay it in instalments over many years. It would be levied on an individual basis but people could elect to be taxed on household basis. The Commission did not recommend any rates and thresholds. Chamberlain argued for minimal exemptions, warning that exempting some wealth would lead to complexity and tax avoidance.

Like Adam, Chamberlain agreed with the need to reform the UK’s existing capital taxes regime first to achieve some of the goals of a wealth tax. She called on the Government to set out a capital taxes roadmap and stressed the need for a political consensus in favour of reform, noting the risk to the tax regime of political parties chopping and changing policy.

Felicity Buchan MP sits on the House of Commons Treasury Committee.

Buchan told the audience that she believed the UK had reached the limit of what it could sensibly tax. She warned that many assets liable for a wealth tax are already subject to tax (for example, through inheritance tax, capital gains tax and council tax), that very few European countries which had experimented with wealth taxes in the past had chosen to retain them, and that a wealth tax could send a negative signal to entrepreneurs and businesses looking to invest in Britain.

Despite being a member of the Treasury Committee that failed to rule out a wealth tax, Buchan said that she did not believe such a tax would work for the UK, arguing that wealth was already taxed in a few different ways. To do so would send out a bad signal as the UK emerged from the pandemic, leading her to conclude that ‘wealth taxes are not the way to go’.

Buchan worried that a wealth tax will lead some people to get taxed on the same income twice. The MP for Kensington argued that while property values in her constituency have gone up considerably over the years, many of the people who live in them do not have the financial facilities to pay a wealth tax on them. She suggested that wealth taxes discourage savings and give a perverse consequence of pushing people into putting more money into pensions. She also talked about the ‘massive’ issue of valuation involved in a wealth tax.

Photo: (left to right) Chamberlain, Barnett, Buchan and Adam

The event at the Manchester Central conference venue was attended physically by 55-60 people and by many more online. The Chair of CIOT's Technical Policy and Oversight Committee John Barnett chaired the event.

A member of the audience remarked that wealth taxes are popular in Latin America yet wealth inequality remains high in many of those countries.

Chamberlain agreed with another guest who cautioned that an annual wealth tax will change people’s behaviour, such as where they decide to keep their money. But she said that people cannot really emigrate to another country to avoid a one-off wealth tax because it would be levied on a particular date without notice.

Another audience member asked what will happen to people who keep money offshore, to which Chamberlain said Common Reporting Standards should help identify the money these people have.

Buchan was keen to emphasise that we should not penalise the well off in the UK, saying ‘levelling up is about taking people up not taking them down’. The MP said the Government had done a good job of clamping down on tax avoidance.

A recording of the Conservative event can be watched here: https://www.youtube.com/watch?v=U3MHL256upk

We held a debate on the same topic at Labour Conference. You can read a review of it or view it here.

By Hamant Verma, Senior External Relations Officer at CIOT