I tend not to bother much these days with the dead-tree press but occasionally I’ll pick up a paper on my journeys on London’s Underground to one meeting or whatever. Yesterday, Anthony Hilton, writing in his regular column in the Evening Standard, absolutely crushed the argument, as floated by the mis-named Liberal Democrats and its leader, Nick Clegg, that what Britain needs is a “wealth tax”, given the existence of current state grabs of our wealth upon death:
“What no one seems to have grasped, however, is that if a further wealth tax were imposed to be paid by people when they were still living, it would reduce the yield on inheritance tax. A wealth tax on the living would not raise additional revenue so much as bring part of the payment forward which would ultimately have come out of the person’s estate anyway on their death. This is most obvious in considering some of the schemes mooted to pay a mansion tax. It is understood that the nearest most people come to wealth is to own a house that has gone up in value over the years. Many of the people living in expensive homes are old and not particularly well-off in terms of income. The house is probably the only thing of real value they have. It means they do not have the ready cash to pay the tax.”
Absolutely. Hilton continues:
“This cash-flow problem could be overcome, it is suggested by wealth-tax supporters, by telling them to borrow against the value of their property through an equity release scheme. They would of course have to pay interest on the money thus borrowed, or have it added to their debt. Alternatively, it may be permissible for them to defer payment and allow the outstanding tax to roll up into a lump sum. This would then be collected on death when the house could be sold. Obviously, both solutions are possible. But both would directly reduce the value of the deceased’s estate, and would therefore result in a pro rata reduction in the amount of estate duty.”
And he plunges a stake into the heart:
“So we have a proposal that would deliver no increase in the overall tax take but would create even more impoverished pensioners, who would be most likely to get their revenge at the ballot box. It might not go down that well with younger voters either once they saw a wealth tax — or the fear of a wealth tax — take away any chance that their parents might help them with a deposit for a house.”
Of course, it is entirely possible that Clegg and his allies are only giving the impression of wanting to enact such a tax in exchange for agreeing to more, supposed spending cuts, and in reality, they realise how pointless and self-destructive such taxes could be. But it is also a sign of how far away we are from any coherent notions of tax in the first place. Consider: the current government recently sought to attract foreign investors to the UK by offering accelerated visas for those investing serious amounts in the UK; it has, it says, sought to clarify rules about domicile and residence. Last year, finance minister George Osborne vowed to cut the top rate of income tax to a still-high 45 per cent. Imposing a wealth tax would blow such limited moves towards commonsense out of the water.