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A one-off wealth tax?

Bad ideas have a tendency to crop up repeatedly. This is for a one-off wealth tax, put together by the “Wealth Tax Commission”, established in 2020. The proposal is being trailed at a meeting in in a House of Commons Committee Room next week, where they will hear from Professor Arun Advani and Professor Andy Summers, chief authors of the idea.

According to the invitation, “They are key members of the Wealth Tax Commission, established in Spring 2020 to provide an in-depth analysis of proposals for a UK wealth tax. The commission has involved a network of world-leading experts, including economists, lawyers and accountants to study all aspects of a wealth tax. You can read its groundbreaking report here.

“Faced with the worst cost-of-living crisis in a generation, it’s more important than ever that we are exploring every avenue toward genuine tax justice, where those with the broadest shoulders pay the most. A Wealth Tax could provide the economy with crucial resources for investment whilst tackling deep social inequalities.”

We entirely agree with the objectives of the proposal, that:

  1. The tax should raise substantial revenue
  2. It should do so efficiently
  3. It should also be fair
  4. The tax should be difficult to avoid

The authors also added a fifth test: A wealth tax should achieve these objectives better than the alternatives. Unfortunately, there is no mention of a land value tax or site value tax, which, as has been consistently argued since 1880, achieves all four of the objectives. This makes one wonder how it has never come to the attention of the world-leading experts? One has to ask how the Commission got itself established, who set its terms of reference, who appointed the members, how it managed to meet when the Covid epidemic was at its worst, and how it managed to obtain its funding so quickly, with support from the Economic and Social Research Council (ESRC), a COVID-19 Rapid Response Grant, a grant from Atlantic Fellows for Social, and Economic Equity’s COVID-19 Rapid Response Fund?

The suggestion is anything but ground breaking. All of the objectives could be achieved by a comprehensive reform of property taxes. All existing taxes can be replaced by a single national land rent charge aka Land Value Tax (LVT). That gives a permanent solution, which a one off tax does not. LVT would be ground breaking, literally.

As a short term fix, the following are possible as a package, though it must be emphasised that this is very much a third best alternative to a proper land value tax based on annual rental values, since a genuine land value tax would vastly simplify the present system.

The quick fix is:

  1. Change the Council Tax ratio from the present 1:3 to a figure which more closely reflects the actual values acrsss the bands, which is 1:6.
  2. (optional) Conduct a new Council Tax valuation with additional top rate bands.
  3. Apply a supplementary national Council Tax Levy.
  4. Introduce annual Business Rate (UBR) revaluations using computer aided mass assessment with increase in the UBR percentage. (Items 1, 2, 3 and 4 replace Stamp Duty, and existing Council Tax and and UBR.)
  5. Phase out VAT within 2 years. The cost to the exchequer is, at most, half the headline yield, as so much disappears in compliance and administration costs, churning, deadweight losses (with associated costs and losses in other tax revenues), and abstraction of revenue from other taxes. Scrapping VAT would deliver at least 5% growth (based on IFS estimates in 2008/9).
  6. Raise allowances and thresholds for income tax automatically in line with price index.

This is a package with a few sweeteners, which as a whole would be more politically acceptable and deliver long-run benefits.  Fairer Shares has devised a similar set of proposals. Surely people with similar objectives ought to be working together? They should certainly not be putting forward ideas which will stir up unnecessary opposition and would achieve no lasting benefit. 

We are opposed to wealth taxes. It might seem pedantic to say so but land is not wealth and a land title is not wealth but a piece of paper which is a claim on wealth ie the rental income stream from the land.

The Commission‘s proposal is for a one-off hit, with a valuation specially for the purpose. This is an absurdity since for much the same amount of effort it would have been possible to bring the 1991 Council Tax valuations up to date, or, better still, conduct a land valuation. It is easy to value land. The valuations can be put on a public register for everyone to see and question if they wish. As long as the valuations are revised regularly – not less than every five years, and there is a trustworthy appeals procedure, there is a solid base for taxation. Land can be taxed at 100% of its rental value, to no ill effects whatsoever – on the contrary, it is the LACK of this tax that is the primary cause of a raft of social and economic problems. It is the main reason why people can get rich by doing nothing.

When attempts are made to tax wealth, things start to get difficult. How do you value racehorses, pictures on the wall, jewellery in the beside table, etc? Wealth is protean. If any attempt is made to tax it, this wealth will go elsewhere and turn into things that HMRI would need an army of inspectors with draconian powers to track down. And for what, when the source of that which the rich have obtained without working for it ie land, can be taxed with so little trouble, effort or cost?

If anyone wants to hear more about this lastest incarnation of a wealth tax, the meeting is on Wednesday 19th October at 10.30 am in the House of Commons (Committee Room tbc). It would be a good opportunity to ask some penetrating questions.