As if times aren’t demoralizing enough, UK citizens are about to have their spirits deflated even further. An independent think tank has recommended that the government introduce a one-off wealth tax to cover the costs associated with Covid. As per usual, the multi-millionaire “non-doms” and those hiding behind shell corporations i.e. the properly wealthy, will get away lightly – unless the government has finally grown a set and is going to tackle the issue of economic leakage to secret offshore bank accounts and trusts. Moreover, any wealth tax will disproportionately target the UK’s Asian communities, who are net savers by habit and asset rich.
While I detest the idea of being taxed on money that I’ve already been taxed on, I accept that a wealth tax may be one, albeit crude way to plug the gaping hole in the nations finances as a result of endless lockdowns. Indeed, it is my civic duty to contribute toward the running of vital public services. Nonetheless, it is quite egregious that the economic havoc wreaked by the virus has been further exacerbated by the UK government’s continued bungling over its response. If Boris Johnson had taken a more urgent and determined stance on Covid from the outset, a prolonged shutdown of the economy could have been avoided. I also suspect that this is a trojan horse tax to cover for lost GDP due to Brexit and the tens of billions handed out to party cronies over the past five years in dodgy contracts. In which case this will not be a one-off and the average Joe is about to be royally shafted (again).
“I’m talking about liquid. Rich enough to have your own jet. Rich enough not to waste time” (Gordon Gekko). The proposal is to levy a one-time tax of 5% on all net wealth above a threshold of £500,000. That captures pretty much everyone in the south of England living in anything larger than a shoe box. It’s only paper wealth for the most part and rampant house price inflation does not equate to stashes of disposable liquidity. 99.9% of these people (like me) have never even been in a private jet, let alone own one. Moreover, to put pressure on households who are already reeling from the economic shock of lockdowns doesn’t sound particularly helpful or productive to me – but alas it’s nothing new for the Tories to use those closer to the breadline than themselves as a human shield.
Crucially, this tax will only be effective and equitable if it is levied on everyone present in the UK. Non-domiciled or not, if you live, work or run a business here, you need to pay your dues. If Chancellor Sunak actually levies this tax, will he, his fellow MPs and super-rich pals open their kimonos on their true wealth? The signs are not promising I must say. Last week, The Guardian newspaper exposed Mrs. Sunak’s (Akshata Murthy, Narayana Murthy’s daughter) involvement in a “business that funneled investments through the tax haven of Mauritius….to allow its backers to avoid taxes in India”. The Chancellor himself has faced criticism for taking a “minimalist approach” in declaring his own personal financial interests to UK Parliament.
Tax havens are generally associated with tax avoidance and evasion (maybe they should be called “tax heavens”?). UK linked tax havens (e.g. Jersey, Guernsey, the Cayman Islands) were established during the heyday of the British Empire to provide repatriating bureaucrats of the Raj somewhere to squirrel away the ill-gotten gains amassed from two centuries of colonial rule. The Empire is gone but the havens are somehow still here.
Offshoring may not be illegal but hiding income and wealth from the tax authorities is unlawful. Indeed, various sources indicate that the UK loses tax revenues in the £70-£90 billion range every year through tax evasion. Against that, the full year 2020 UK government spending deficit is £62.3 billion (source: UK government). A crude comparison but it doesn’t take a rocket scientist to see we’ve both the problem and the solution staring us in the face here!
Which came first, tax or tax havens? Ironically, it’s high taxes to fund the countries post-war recontruction that gave the impetus for more tax avoidance and the rise of Offshore Financial Centres – so much so that jurisdictions like the Cayman Islands went on to become some of the largest financial centres in the world. Most recently, in the ensuing Brexit chaos, wealthy Leave campaigners, like James Dyson, have been quick to relocate their own businesses overseas.
Patriotism is a poor substitute for self-enrichment it seems. It’s fairly apparent that if everybody paid their taxes fair and square, we would have a fully funded economy, lower tax rates (like Singapore or the UAE) and no need for tax havens. Suffice it to say, a wealth tax would also put the kibosh on the UK’s own ambitions of turning itself into a low tax jurisdiction following its exit from the EU.
The government may also want to consider the potential impact on the ethnic vote bank. Not only do British Indians tend to have higher average earnings than other ethnic groups (per ONS data), data also shows that the bulk of Indians own their own homes (74%) with 80% of Indian households sitting on net property wealth. Indeed, growing up as the son of an Indian immigrant, I noted that we were keener on houses than “wasteful” expensive holidays. In fact, I didn’t go anywhere overseas, except India, until the age of 25. To be tariffed for being frugal and fiscally conservative will not be viewed kindly; and the Conservative Party has made such efforts to lure Indians away from Labour over the last five years.
The Tories have always branded themselves as the party of laissez-faire policies and low taxation. If they implement this tax though, they will own it. Moreover, a wealth tax now would be impractical, inefficient and harmful. Firstly, when’s the appropriate cut off for valuing people’s assets? Before Covid, now or after the virus is gone? What is the correct threshold to apply given most wealth is held in illiquid form i.e people’s homes? Indeed, should one’s home be included in the calculation? Secondly, people won’t appreciate being kicked while they’re still down. In that way, an increase in income tax would be easier to digest as it’s geared toward a resumption of economic activity. A wealth tax could be considered once we’ve fully rebounded from the current malaise. Thirdly, the government has other options available too; for example, it could take advantage of historically low borrowing rates. It could also try to retrieve the billions handed out to government insiders.
Either push for full transparency across the board (from individuals and large corporations such as Cisco or Google alike) or don’t introduce the tax at all. That means declaring war on tax evasion. Ministers and senior public servants need to lead the charge on this front by providing full details on their personal finances to HMRC, making non-declaration a punishable offence (that would really set the cat amongst the pigeons). If the current government is serious about “levelling up” society, then this is its chance to put its money where its mouth is.
Views expressed above are the author’s own.
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