Wealth tax prospects and practicalities discussed by expert
When you subscribe we will use the information you provide to send you these newsletters.Sometimes they’ll include recommendations for other related newsletters or services we offer.Our Privacy Notice explains more about how we use your data, and your rights.You can unsubscribe at any time.
On March 3, Rishi Sunak will deliver his second Budget as Chancellor of the Exchequer – this time against the backdrop of the largest fiscal deficit since World War II. It is expected that Government borrowing us to reach more than £400billion higher in 2020/21 than pre-pandemic expectations.
It’s not yet known what Mr Sunak will announce, however there’s been plenty of speculation among experts.
Ahead of the Budget, Tom Selby, senior analyst at AJ Bell, has considered what some of the pros and cons of potential tax changes may be.
“With an agreement reportedly reached between Number 10 and the Treasury not to increase Income Tax, National Insurance or VAT rates in the forthcoming Budget, Chancellor Rishi Sunak must navigate a £400billion high-wire act with one arm firmly tied behind his back,” Mr Selby said.
“To one side he can see the fiery pit of economic disaster if the UK doesn’t get its financial house in order, while on the other is the molten lava of electoral disaster if he cuts too hard, too fast or in the wrong places.
“With such dangers below, the last thing Sunak wants to do is have a wobble.
“The decision to stick to the triple tax lock manifesto promise has likely been driven by both economic and political pragmatism.
“As the vaccine rollout gathers pace, there is genuine hope that society will be able to return to something resembling normal in 2021.
“Increasing income tax or National Insurance just as society opens up would risk strangling any economic recovery we might see and angering voters in the process.
“While Sunak’s options on March 3 are clearly limited, there are alternative revenue raising options open to the Treasury – but even these come with health warnings attached.”
Among the proposals is the introduction of a wealth tax which would apply on all assets which are above £500,000 per individual.
According to Mr Selby’s analysis, there are various positives and negatives which he could identify.
He pointed out the measure would enable the Chancellor to raise significant funds quickly.
According to the Wealth Tax Commission, a five percent tax on net assets above £500,000 per individual could raise £260billion.
The £500,000 threshold would impact 17 percent of the population.
However, Mr Selby suggested that on the other hand, it could slow down economic recovery, as well as being logistically difficult for people to pay on illiquid assets such as their home.
He said: “Rishi Sunak is widely reported to have rejected the idea of a wealth tax and it’s easy to see why.
“The Wealth Tax Commission proposed that a wealth tax should cover all assets including people’s homes.
“This would be politically toxic as it would hit older property owners the hardest, many of whom are core Conservative voters and would be unlikely to forgive the Chancellor.
“Many of these people will have a significant proportion of their wealth tied up in their home and won’t necessarily have the cash available to be able to pay the tax so it becomes logistically difficult to implement.
“There is also the wider issue of a wealth tax actually hindering the UK’s economic recovery.
“Many people have saved money during the pandemic because they are unable to go out and spend it on the things they normally would.
“That pent-up demand could lead to a sharp economic recovery when lockdown restrictions are lifted and levying a tax on those savings could stifle spending and slow the recovery down.
“Having said that, the figures in the Wealth Tax Commission report will look very appealing to the Chancellor and desperate times sometimes call for desperate measures so a wealth tax can not be ruled out completely, especially if the Chancellor excluded people’s homes and could convince the public that it really is a one off measure to get the country back on its feet.”
Source: Read Full Article