2020 has so far not really gone to plan.
Fiscal projections were thrown out of the window as soon as the Chancellor unveiled his ambitious and wide-ranging package of measures aimed at propping up the economy through the worst of the COVID-19 lockdown.
But with measures still in place, and businesses and people struggling, how is Mr Sunak going to find anyone with deep enough pockets to help him foot the bill to pay for all this support when he presents his next Budget in the Spring?
It is fair to say that protecting people’s income has been forefront of the Government’s support packages, through things like the Job Retention Scheme and the Self Employment Income Support Scheme, which might suggest that heavy tax increases on income are unlikely. What might be seen as fair game are increases in capital taxes, or even the introduction of a new, wealth tax.
Of course, we do already have taxes on wealth, both capital gains tax and inheritance tax are levied on the value of wealth, but in different ways. Inheritance tax is wildly unpopular, despite being paid by less than 4% of people on death, and capital gains tax is already the subject of a specific review commissioned by the Chancellor earlier this year. So is there any appetite for a new wealth tax?
The answer may be yes. A survey published earlier this month by Ipsos Mori and in conjunction with Professor Karen Rowlingson at the University of Birmingham suggests that over half of the population (54%) would support a wealth tax if the Government needed to raise £10bn. However, people are not necessarily in agreement as to what that wealth tax might look like. The most common view, held by 26%, is to tax those with over £1 million at a rate of £6 per £1,000, but this was not far exceeded by the 20% of the public who would support taxing those with wealth over £500,000 at a lower rate (£2.50 per £1,000) to raise the same overall amount.
But what exactly is being taxed?
Almost half of the public (47%) prefer a net property tax i.e. deducting mortgages from house value, but survey participants also recognised that using property value minus mortgage value would lead to a tax on people who had paid their mortgage off, and could incentivise people to take out or not pay off a mortgage in order to avoid it.
One of the biggest concerns with a wealth tax, that the wealthy will be able to find ways around it and leave those in the middle shouldering the burden. In fact, in the qualitative research undertaken in the study, participants consistently suggested a threshold above their personal wealth; they can’t afford it, but anyone wealthier than they are can cough up. But the other side of the coin is that, if taxes are increased too much, will all the wealthy people in the country simply move elsewhere to avoid paying? Many other countries will also be looking to refill their coffers after the pandemic is controlled, and perhaps they will adopt the bargain basement model of taxation; if the tax rates are low enough, they will attract sufficient taxpayer to generate more tax.
Answers on a postcard…
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