Mansions, income or inheritance? Reeves’s options for a wealth tax ...Middle East

Bringing in a wealth tax as demanded by Labour MPs could be impossibly difficult, left-leaning economists have warned Sir Keir Starmer.

But there is room for higher levies on the income that people get from their savings, investments and property.

With the Treasury expected to look for billions of pounds in additional taxes at the next Budget due to global economic volatility and the recent U-turn on welfare cuts, there are growing calls for the Chancellor to raid the assets of the richest in society.

Conservative politicians and free-market economists have hit out at the idea, claiming that it would drive entrepreneurs out of the UK and harm the economy.

Even those who are more sympathetic to the rebalancing of wealth are sceptical that a pure wealth tax is workable, with many preferring a halfway house instead.

The classic wealth tax would see people hand over a certain amount of their worth to the Exchequer each year, above a threshold designed to exempt the vast majority of Britons from paying anything.

Former Labour leader Neil Kinnock last weekend proposed a levy of 2 per cent on assets above £10m, which he said would raise around £10bn.

Former Labour leader Neil Kinnock thinks billions can be raised from a wealth tax (Photo Tom Pilston)

Green Party policy is a 1 per cent tax on wealth over £10m, rising to 2 per cent over £1bn.

The party’s co-leader, Adrian Ramsay, told The i Paper: “We need to tax wealth fairly to fund the frontline services we all rely on – from our NHS to local councils to schools and social care. For too long, successive governments have tried to balance the books on the backs of the most vulnerable. The sense of betrayal many people feel seeing Labour continue that Conservative trend is palpable.”

Unite, one of the country’s biggest trade unions, backs a 1 per cent tax on £4m, claiming it would raise £25bn a year.

Other unions are less explicit but many do support the principle of a wealth tax. Usdaw’s Paddy Lillis said: “It is clear that a fairer tax system is needed so that we can rebuild our public services – there is strong public support for the idea that the wealthiest should pay their fair share.”

Levelling up capital gains tax

At the last Budget, Rachel Reeves increased capital gains tax rates – but they are still lower than income tax. Higher-rate taxpayers must pay 24 per cent on most profits from investment, less than the 40 or 45 per cent levied on income.

Ashwin Kumar of the progressive IPPR think-tank suggested that equalising these rates would be a quicker way of raising money than a wealth tax, not least because the Government does not hold a register of assets which could be taxed, but does already require information on the profits that people make.

He told The i Paper: “The starting point is that a wealth tax could not be implemented very quickly, because you would need to set up an asset register so that the Government knows exactly what it is taxing. It would be much easier to increase tax on income from wealth, such as capital gains tax, because the Government already has the data that it would need.”

Adam Corbett of the Resolution Foundation added: “It is better to fix the existing wealth-related taxes that we have than to invent a new one. There is a bit of levelling up of tax rates to be done.” He suggested charging capital gains tax on assets which are taken out of the country, and ending the current system for taxing assets passed on through inheritance.

At the moment, you would be unlikely to have to pay any capital gains tax on an inherited asset if you sold it immediately after you received it, because its value would be unlikely to have risen in that time.

But Corbett suggests that the liability for capital gains tax should instead be based on the difference between the value of the asset when it was originally purchased and the value it had reached when it was passed on. This would mean beneficiaries could be left with a much higher tax bill.

Currently, national insurance is paid primarily on income from work and not on the proceeds of wealth – such as rent received by landlords, dividends and pensions.

Alfie Stirling of the Joseph Rowntree Foundation suggested the Government could raise £20bn a year through ironing out these anomalies, which effectively mean that work is taxed at a higher rate than other forms of income.

He said: “Our view is that the first thing we should do is look to iron out the unequal tax treatment of different types of income. We could think about broadening the types of income that national insurance is applied to, and you could also think about bringing the rates of capital gains tax and income tax into better alignment. The reason we would go there first is that you could both have a more fair tax system, and improve economic efficiency.”

Property taxes

At previous Budgets, the Treasury is understood to have considered and rejected the idea of a “mansion tax” – an additional levy on the priciest properties.

This could be done through the existing council tax system, with extra bands applied beyond the current maximum band H, or through a separate new tax.Corbett said that the burden of paying council tax should shift from the occupier of a property to its owner, meaning that landlords, rather than tenants, would be taxed on the value of rented accommodation.

He added: “I think it is possible to raise a significant number of billions of pounds from wealth-related tax changes on the very wealthy, and in ways that actually improve the tax system rather than worsen it.”

What the Government will do

Reeves has dropped her public opposition to a wealth tax, in an apparent bid to keep her options open ahead of a tricky Budget in the autumn.

But Treasury veterans expect that the Chancellor will be nervous about targeting assets – as opposed to income flows from assets – because of the risk it could have a chilling effect on investment.

Labour insiders have suggested that instead, she will aim to ensure that the burden of higher taxes continues to fall on richer individuals, to show MPs they are being listened to.

A Downing Street spokesman said: “We’ve always been clear that those with the broadest shoulders should carry the greatest burden, but we back wealth creation. The best way to strengthen the public finances is by growing the economy. That’s our number one priority. That’s our focus. And changes to tax and spend policy are not the only way to do it, as seen with our planning reforms.”

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