We often get asked how a wealth tax would work in practice.
Some of the practicalities were discussed in an article by Peter Lamb MP last week.
He was putting forward alternatives to welfare cuts – and emphasised how the detail on how a wealth tax would work is really important.
We agree. And we want to delve a bit deeper – to address some of the questions we regularly get asked about a wealth tax.
Let’s start with the obvious one.
Who would pay it?
Only a tiny number of people would be affected.
We – and our allies – are proposing an annual 2% tax on wealth above £10 million. That means everyone with wealth below £10m is unaffected.
This 2% annual tax would affect around 20,000 people in the UK – or under 0.04% of the population. To reiterate, they would only pay the tax on their wealth above £10m.
How would it be collected?
One of the common criticisms of a wealth tax is that it would be impractical to collect.
This assumption is often based on historic wealth taxes in other countries.
In these examples, the threshold for the tax was often much much lower e.g. in the hundreds of thousands of pounds, or low millions.
This meant many more people were liable to pay it – making collecting the tax more cumbersome.
The wealth tax we propose would affect only 20,000 people, making administering it much, much easier for HMRC.
Like inheritance tax, it would involve a self-declaration of asset values by the tax payer, backed up by a compliance team at HMRC.
HMRC could also further develop registers of assets. This would help crack down on dirty money too.
Won’t rich people just leave?
Our wealth tax proposal is informed by modelling carried out by Dr Arun Advani, at the Centre for the Analysis of Taxation and University of Warwick.
His research suggests that between 7 and 17% of the potential revenue could be lost due to changes in behaviour, for example by moving abroad or trying to hide assets.
Even taking this potential behavioural change into account, the wealth tax we propose would still raise £24 billion a year.
Othe research by Tax Justice Network – looking at international examples of wealth taxes – has found no evidence of the super-wealthy leaving in response to tax reforms targeting the super rich.
In fact, just 0.01% of the richest households relocated after wealth tax reforms were introduced in Norway, Sweden and Denmark.
And we know that most of the public and UK millionaires themselves think the wealthiest should pay more – PMUK found that 65% of UK millionaires support a 2% wealth tax to invest in our public services.
It’s about more than money
The broader point here is important: the vast majority of very rich people will choose to stay in the UK even if a wealth tax is introduced.
Why? Because their lives are here. They have families, friends and connections – and they like living in the UK. They often prioritise these things over paying slightly less tax.
“A study by the London School of Economics finds that the rich are, in fact, very unlikely to relocate because of tax rises alone, particularly those living in some of the world’s largest cities, such as New York, London and Tokyo.”
That’s a quote from a Financial Times article from last year. The study interviewed 35 ultra rich residents of London – and not one of them was planning to leave for tax reasons, despite all the scare stories at the time.
If you’d like to read more, we have a more comprehensive rebuttal of many of the other criticisms of a wealth tax on our website.
How much could it raise?
The wealth tax we propose could raise £24 billion every year.
Let’s put that into context. That’s enough to reverse all of the planned disability benefits cuts, re-instate the winter fuel allowance – and have tens of billions left over to invest in the NHS or public services.
Let’s never forget this context. We are fighting for a wealth tax on the super rich to help people, to create a better social security net and higher quality public services that benefit us all.