Experts warn against Rachel Reeves’s plan to tax the wealthy | Politics | News
Chancellor Rachel Reeves said she would increase taxes on the wealthy in her budget on November 26. Asked whether his Nov. 26 statement would include higher taxes on the wealthy, he said those would be “part of the story.” His comments sparked fears he could be planning a wealth tax that could hit people with expensive homes, large pension funds or ISA savings, or assets such as luxury cars.
But experts warn this would actually cause billions of pounds to be moved out of the country, leaving the UK even poorer. They note that other countries have actually eliminated wealth taxes because they don’t work. “There is clear evidence that a recurring wealth tax would cause economic harm to the UK,” said Oliver Jones, Head of Asset Allocation at personal finance experts Rathbones Group. He produced analysis showing that such a tax would actually cost £600 million to establish and £700 million to administer.
He explained that administrative costs were the main reason why many countries abandoned wealth taxes and why the Labor government that promised a wealth tax in the 1970s never followed through.
Unlike an inheritance tax upon death, a wealth tax requires constant auditing, even for those who ultimately owe nothing. Rathbones also notes that, with more than a quarter of the UK’s billionaires and an even higher proportion of the richest being foreign-born, their flight risks reducing the ongoing value of any wealth tax.
Mr Jones said: “Such a tax would require annual valuations of complex and illiquid assets, including private companies, works of art and intellectual property, for thousands of people. This process could be costly to administer, difficult to implement and could create significant economic distortions.”
Rathbones also estimates that at least £100 billion worth of assets could be moved abroad or into less productive forms if a wealth tax were implemented.
Since the 1990s, the number of rich countries imposing wealth taxes has fallen by three quarters, from twelve to three. Spain and Norway raise relatively little revenue through limited wealth taxes; which is much less than advocates in the UK had predicted. Only Switzerland generates significant revenue from wealth taxation, but its entire tax system is structured differently; Taxes on income, dividends and inheritance are minimal.
After France announced in 2017 that it would replace its wealth tax with a property tax, the number of eligible taxpayers leaving the country fell to the lowest annual rate since 2005. The number of wealthy taxpayers returning to France increased; It increased from around 100 before the reform to around 250 in 2018.
Simon Bashorun, Director of Consulting at Rathbones Private Office, said: “Changes to the non-Dom regime have already slowed the exodus of the super-rich, and the risk of wealth tax is accelerating the exodus of wealthy individuals from the UK. We now have high-earning professional clients looking to move to more tax-efficient areas such as Dubai or Singapore. Many people may decide not to come here in the first place.”
“In a world where countries are constantly competing with the taxes they pay to attract wealthy individuals and drive economic growth (something the UK is crying out for), we seem to be making it harder for ourselves to win,” Bashorun added.
Rachel Reeves has come under further pressure ahead of next month’s budget after official figures showed growth slowed in August following a surprise contraction in July.
The Office for National Statistics (ONS) said gross domestic product (GDP) rose 0.1% month-on-month in August and fell 0.1% in July, revising the previous forecast of no growth.
The ONS stated that GDP increased by 0.2 per cent in the three months to August and by 0.2 per cent in the three months to July.
The latest figures come after the International Monetary Fund (IMF) predicted earlier this week that inflation in the UK will rise to the highest level in the G7 in 2025 and 2026.
While the influential economic institution increased its growth forecast for the UK this year, it lowered its forecast for 2026 due to concerns about the labor market.
GDP data further adds to the dilemma facing Ms Reeves as she prepares for the tough November 26 Budget; Faltering growth adds to the headache and makes it harder to fill the black hole in the nation’s finances.
Speculation about upcoming tax increases and spending cuts to address public finance difficulties continues to increase.
An HM Treasury spokesman said: “We have seen the fastest growth in the G7 since the start of the year, but for many people our economy looks stuck.
“I work every day without progressing.
“The Chancellor is determined to turn this around by helping businesses in every town and high street grow, investing in infrastructure and reducing red tape to get construction started in England.”
