Article by Adele
With the vaccine roll out well under way, the markets are now starting to think about the future when we can start to get back to some form of normality. That then raises the question of how to deal with massive debt the Government has built up supporting businesses and workers through the pandemic. The bill is currently estimated at £280 billion. That is £280,000,000,000.
One of the suggestions that has been doing the rounds for a while now is the idea of a wealth tax, perhaps as a one off. The idea being floated is a one off 5% tax on assets over £500,000 or £1m per household. That would amount to £50,000 as a minimum. The Wealth tax Commission set up by the London School of Economics has estimated that this type of one-off tax would raise £260 billion – effectively what we need to pay off the debt. On the face of it that looks quite appealing, unless of course you are one of those who must pay, in which case its likely to be very unpopular.
Unfortunately, someone will have to pay, which means that it becomes a political question.
Chancellor Richie Sunak seems have set down a marker already however, by saying that such a proposed one-off wealth tax would be “un-Conservative”. That sounds like he doesn’t like the idea.
It would certainly be problematic. Setting an arbitrary valuation on someone’s assets in the first place is fraught with difficulty. If you’re looking at property values for example, who will decide what is worth under £500,000 and what’s worth over £500,000? Or if assets are in the form of investments or pensions – at what point in time do you value these, when market conditions can change. Then there is the extremely thorny issue of public service pension valuations. These are not held in a cash value pot, but they absolutely carry massive value, so some way of calculating this would be needed.
If that’s not difficult enough, you would then have the issue of how to collect the wealth tax. Some assets are held in liquid cash or investments, but the majority is locked up in property values. So how would this be unlocked? A charge on sale of the property? How would this impact on inheritance arrangements or the need for assets to pay for long term care? How would people budget for Inheritance Tax?
So, on the face of it a one-off wealth tax seems like a simple solution, but it would be hugely complicated and politically sensitive, no wonder the chancellor seems to be avoiding it.
More likely there will be changes to existing tax structures which could help pay down the debt. For example, Inheritance Tax rates, bands, or Capital Gains Tax arrangements. These are more likely targets than a wealth tax, or even adjustments to the basic rate of income tax.
Whatever happens, someone will be paying the bill that’s only certainty.
