Think tank calls for ‘badly designed’ existing levies to be changed first.
Chancellor Rishi Sunak has been urged to focus on reforming the current tax system before introducing new charges on wealth.
The Wealth Tax Commission, a group of tax experts and academics, last year called for a wealth levy on all individual assets worth more than £500,000.
Money raised would help repay state support during the pandemic. If it was charged at 1% a year for five years this would raise £260 billion, or £80 billion with a threshold of £2 million.
But the Institute for Fiscal Studies (IFS) has instead suggested the chancellor focuses on reforming “badly designed” existing levies such as pensions tax, council, tax, inheritance tax and capital gains tax.
- Pension and property wealth tax plans handed to Treasury
- Higher earners to bear brunt of Treasury tax-raid plans
- Are you saving enough for retirement? Our calculator can help you find out
Paul Johnson, director of the IFS, says Sunak will have a “host of tough choices and trade-offs to make” as he steers the economy and the public finances into calmer waters.
Johnson says the chancellor must avoid exacerbating wealth inequalities further. He adds: “This means looking at tax and spending decisions according to how they affect those with wealth, and those without.
“It also means making sure that the Treasury keeps an eagle eye on how public money is spent.
“We do younger generations no favours at all if we allow public debt to rise inexorably unless we are really very sure that we are getting good long-term value for the money being spent.”
Johnson adds that the young will get the benefits of spending that enhances growth but will also be on the hook for the debt incurred.
Other commentators have also questioned the effectiveness of a wealth tax.
- Take control of your retirement planning with our award-winning, low-cost Self-Invested Personal Pension (SIPP)
Stuart Coombe, chartered financial planner for Old Mill, warns that it would trap millions of people who are by no means wealthy.
He says: “Having a wealth tax would be a radical way for Sunak to raise some much-needed revenue to help combat the cost of the various financial support packages given out in 2020 and given it is seen to target the better off in society there would likely be reasonable public support.
“However, the suggested threshold of £500,000 would cause consternation among the middle classes who would be likely to get caught.”
These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.