The fact that chatter about a wealth tax is increasing to the point where it could become reality in the UK should not be a surprise. But it would be a very odd thing for a Conservative government to be the one to actually implement it.
As the deadly Covid-19 coronavirus spread throughout the world, forcing governments to impose strict lockdowns to try to slow the outbreak, Britain has been one of the worst-hit countries.
The UK holds a grim record in Europe as the country with the highest number of people killed by Covid-19 (more than 41,000 as at June 12, 2020). The UK also had the third-highest death toll in the world after the US and Brazil.
Boris Johnson’s government came under intense criticism for not imposing the lockdown sooner, which, some experts said, could have saved thousands of lives. It is now coming under fire again, for what some critics see as a too rapid relaxation of the lockdown, which could potentially push up the number of new cases again.
But in truth, the government has little choice, because the economy is in very bad shape, having posted its largest ever contraction in April, of 20.4%. This despite the fact that the revenues of about a quarter of UK workers are being propped up by the taxpayer-funded furlough scheme, which has cost almost £20 billion ($25 billion).
The cost of the emergency measures – increased spending and tax cuts to stimulate growth – is estimate at around £133 billion this year. At least part of this money will have to come from other sources than borrowing, in order to maintain the investors’ confidence in the government.
How about a wealth tax?
In this context, an article by Reuters news agency quoting a source in the banking world that government officials were sounding out members of the financial sector regarding potential new taxes should not surprise anyone.
Earlier in the year, tax specialist Richard Murphy said, quoted by the Guardian, that a wealth tax could raise around £174 billion, and noted that income is taxed at 10 times the rate of wealth in the UK.
The Covid-19 crisis is deepening inequality in the UK, with the poorest people worst hit because they are in precarious jobs that are the first to go in a recession. In contrast, the wealthy, although hit by the fall in markets sparked by the Covid-19 outbreak, still have plenty of resources to live well above their means.
A wealth tax is slowly rising in popularity, at least judging by responses in a YouGov survey, where the percentage of those who believe it would be fairer to tax people on their wealth than on their income increased by three percentage points to 27% in May from March.
More than 60% of respondents in another survey were in favour of a windfall tax on those with assets worth more than £750,000, excluding pension assets and their main home.
But proposals for a wealth tax have cropped up periodically, without ever materialising. Indeed, one of them on this website six years ago argued that a wealth tax could solve the housing crisis, as it would serve as a deterrent for those who treat property like an investment, rather than necessity.
Unfortunately, successive UK governments have been encouraging people to “invest” in the housing market and use their houses as piggybanks by taking advantage of all sorts of financial products tied to house prices to squeeze some more wealth out of their property.
This has been seconded by central bankers who have kept interest rates at record lows and printed huge amounts of money in order to keep boosting house prices to maintain consumer confidence at high levels.
In this environment, the government will probably decide that imposing a wealth tax would dampen the main source of confidence for consumers just when it is needed most. Most likely, because of the huge role the housing market is playing in the UK economy, all this recent talk about a wealth tax will remain just that.