A new wealth tax should be imposed on the rich to help the UK recover from the economic impact of the coronavirus crisis, Labour has urged.
Shadow chancellor Anneliese Dodds has called on the government to introduce a “new settlement” to support low and middle-income people hit by the pandemic.
What is a wealth tax?
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Capital incomes (wealth generated by assets) are currently taxed less heavily than labour incomes (salaries), says the Institute for Fiscal Studies (IFS).
Basic-rate taxpayers can currently earn £1,000 of interest on their savings tax-free, while higher-rate taxpayers can earn £500, reports The Telegraph.
A wealth tax would tax a small percentage of rich individual’s net wealth and assets, either as an ongoing tax or a one-off windfall measure to raise funds.
Speaking ahead of Chancellor Rish Sunak’s mini-Budget on Wednesday, Dodds said: “Over the last ten years, the gap in income and wealth has increased, and living standards for low and middle-income people have stagnated – at the same time as taxes for the very best-off have been reduced.
“So finally, government must commit, at the very least, to not increase taxes or cut support for low and middle-income people, during the period while we recover from this crisis.
“Because just like the small business that fears for its future, what people want – what they deserve – is fairness.”
A recent You Gov poll found that 61% of the British public backed the introduction of a wealth for people with assets worth more than £750,000, excluding pensions and the value of their main home, reports the Financial Times.
During appearances on the BBC’s The Andrew Marr Show and Sky’s Sophy Ridge on Sunday, Dodds said a higher tax burden ought to fall on those with the “broadest shoulders”.
“I think, where there needs to be additional funds going into the system, they should be coming from those with the broadest shoulders, and we have seen an increase in income and wealth inequality over recent years,” she said.
Who else supports the concept?
Former civil service chief Gus O’Donnell said last week that a wealth tax looked more likely than every because of the coronavirus pandemic.
The fallout from the virus had created “a clear burning platform” for tax reform, including increased taxes on wealth, because it had exposed and worsened inequality in the UK, he said at the launch of an IFS project to investigate the proposal.
Could such a tax help pay for the Covid tab?
Labour MP Lucy Powell told Good Morning Britain on Monday that “the very best off” people might need to make “more of a contribution” to help cover the nation’s coronavirus costs, reports Metro.
“At some stage, there may need to be some clawing back,” she said. “When the government needs to do that, we don’t want them to make the same mistakes and get the poorer society to pay for that.”
Nick O’Donovan, an economics lecturer at Manchester Metropolitan University, believes UK voters would back a one-off wealth tax to help address the coronavirus deficit.
“If the costs of the crisis are added to the public debt, to be serviced out of conventional future tax revenues, we are essentially saying that those who engage in economic activity after the crisis should pay for the emergency healthcare spending and economic bailout enjoyed by taxpayers today,” he told FT tax reporter Emma Agyemang.
