Campaigners name on Reeves to introduce a wealth tax: What is it and wouldn’t it actually work?

Campaigners will gather at the Treasury this evening ahead of Rachel Reeves’ first Spring Statement.

The group, which includes trader-turned-campaigner Gary Stevenson, Green Party leader Carla Denyer, and Ecotricity founder Dale Vince, are calling on the Government to raise taxes on the super-rich.

A wealth tax has long been mooted as a way to increase the Treasury’s tax take but has picked up traction as Reeves looks to slash public spending to balance the books.

Her fiscal headroom has been almost entirely wiped out so to meet her self-imposed fiscal rules, she is eyeing billions of pounds of cuts to Whitehall departments, including disability benefits and international aid.

Campaigners are now calling on Reeves to impose a 2.5 per cent tax on assets over £10million which could raise £36billion, according to Greenpeace claims.

They say the one-off tax on the super-rich would help to plug Reeves’ spending gap and wealth inequality.

Balance the books: Campaigners are calling on Reeves to introduce a wealth tax 

What is a wealth tax?

A wealth tax does what it says on the tin: it taxes the very wealthiest in society a much higher rate of tax instead of going after people’s earnings.

Oxfam says it is a tax on ‘the total value of a person’s assets over a certain amount set by the Government. Assets can include cash, property or land, stocks, businesses, valuable possessions, and other forms of wealth.’

It has been widely popular among left-wing campaigners, namely former trader Gary Stevenson, and was also in the Green Party’s election manifesto.

It is also popular among Britons, according to Oxfam’s own polling, with some Labour MPs also calling on the Government to introduce it instead of taking an axe to public spending.

Campaigners argue that while many high earners do pay more tax, others – particularly those who make money from capital gains – pay lower rates.

Wealth tax advocates say changing the system to make CGT and income tax level would make society fairer.

Caitlin Boswell, head of advocacy at Tax Justice UK said: ‘Choosing to make cut after cut to the poorest and most marginalised, while leaving the vast resource of the extreme wealth of the super rich untouched, is immoral, harmful, and will not deliver for our communities or the economy.

‘Instead, this government could choose to tax the wealth of the very richest people and corporations. 

‘This would raise tens of billions annually to address the cost of living crisis and deliver the long-term investment our country needs.’

Will a wealth tax work?

The main argument for a wealth tax is that the rich are getting richer. Oxfam claims the richest 1 per cent of Britons own more than wealth than the poorest 70 per cent and the world could see multiple trillionaires within a decade.

Others argue a wealth tax hasn’t worked in any country that has tried to implement it.

Paul Johnson, director of the Institute for Fiscal Studies (IFS) recently said as much: ‘No country in the world has ever successfully had a wealth tax that’s raised serious money.’

Colombia, Norway, Spain and Switzerland have wealth taxes, while France had to pare back its plans to a levy on real estate assets.

Although that is not to say that a wealth tax in Britain would follow the same route. Advocates could look at mistakes made in those countries to make a more effective wealth tax.

The other issue with a wealth tax is that there is currently no consensus on what it would look like, which assets would be taxed and logistically how it would be implemented.

Johnson said: ‘You could certainly raise some billions by putting a 2 per cent tax on net assets worth more than £10million… 

‘A lot of that money comes from the super-wealthy who can afford very good lawyers. 

‘And the question is, how do you determine their residence, where their assets sit… how would you value things?’

Tax Justice UK says applying a 1-2 per cent wealth tax on assets over £10million would affect around 20,000 people and therefore much easier to administer.

In 2020, the Wealth Tax Commission proposed a one-off wealth tax – similar to the one proposed by Greenpeace – which would raise hundreds of billions. 

However, it said a permanent wealth tax would be more problematic because of valuation challenges. 

One of the biggest arguments against a wealth tax is the risk of capital flight, meaning wealthy entrepreneurs could leave the UK or worse, be a disincentive to entrepreneurship entirely.

Analysis by the Adam Smith Institute earlier this year found that the country lost 10,800 millionaires last year, more than double the number the previous year.