Rachel Reeves will be forced to raise taxes or slash spending, with Britain’s finances in a mess made worse by Donald Trump’s trade tariffs. After the Chancellor cut spending in her Spring Statement she saw a backlash against her plan to lower the welfare bill.
Pressure is mounting for a wealth tax to make up the shortfall, with supporters arguing it would raise billions and spare ordinary taxpayers. Critics argue it would pose an administrative nightmare for HMRC, which would be tasked with having to assess the wealth of tens of thousands of people.
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Tom Clougherty, executive director and Ralph Harris Fellow at the Institute of Economic Affairs, described wealth taxes as a “bad idea” that have “no compelling justification”.
He argued that a wealthy investor could “easily” face an effective tax rate on their investment returns of 80% or more, from a supposed 2% wealth tax.
Mr Clougherty asked: “If you tax returns that heavily, who is going to want to invest or grow a successful business in Britain?
“We may already be losing millionaires at a faster rate than any country except China. A wealth tax would accelerate that trend.”
He added Britain’s stagnant economy has little to do with the distribution of wealth and by driving capital out of Britain, a wealth tax would itself reduce growth, investment, and employment.
Jake Atkinson, campaigns manager at Tax Justice UK, said the UK could have strong investment in its hospitals, schools and communities, but instead wealth is overwhelmingly held by a small number of billionaires and the super rich.
He said: “A wealth tax would help tackle this inequality crisis. A 2% tax on wealth above £10million would raise £24bn a year.
“This is more than four times the planned cuts to welfare, raising billions more to invest in our country.”
He added that a threshold of £10million would only affect about 20,000 people, some 0.04% of the population, making a wealth tax “far easier” to administer.
Mr Atkinson also argued that with millions feeling the sting of inequality and underinvestment in childcare, social care and housing, it is “only right” those with the broadest shoulders contribute more.
