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Sensemaker: Could a wealth tax pay for Covid?

Sensemaker: Could a wealth tax pay for Covid?

What just happened

Long stories short

  • Nasa’s Perseverance Mars probe made a flawless landing in the Jezero Crater, precisely on target after a journey of 292 million miles. 
  • Tony Blinken said the US was ready to discuss rejoining the Iran nuclear deal.
  • Christian Aid said the G7 countries had ordered 1.5 billion more Covid vaccine doses than they need (more below).

Could a wealth tax pay for Covid?

The idea of taxing assets as opposed to income normally gets short shrift in the UK, but these aren’t normal times. Budget day is two weeks away and Rishi Sunak is looking at a Covid-shaped hole in the public finances. Borrowing is up £350 billion year-on-year and the deficit has more than quadrupled. Meanwhile the chancellor may have noticed that one group of people have a lot more money now than before the pandemic – the billionaires.

Could they pay for Covid?

The last British government that tried to introduce a tax on wealth was Harold Wilson’s in 1974, and it failed. But unlike his proposals, new ones from the Wealth Tax Commission, a group of independent academics, are for a one-off tax – and it would raise enough to cover the full range of coronavirus-related costs from furlough to industry bailouts. 

The idea has some traction: an Ipsos poll in October found that, given of a choice of possible tax increases, more Britons chose a wealth tax than any other type of tax. 

“It’s a way of raising money from those with the broadest shoulders, without needing to be a ‘soak the rich’ policy,” says Arun Advani, co-author of a recent commission report and a guest at our Future of Money summit next week.

Critics say wealth taxes tend to fail because the rich simply move their wealth abroad. But Switzerland’s experience suggests otherwise, and experts are taking the idea seriously again because of the sheer scale of the fiscal challenge. 

Key practical questions include how to value assets fairly and whether to include people’s homes. The commission’s proposals do include them and would impact millionaires as well as billionaires, but so far there has been little focus on exactly how much of the bill would be covered by the ultra-rich. 

As an experiment, using wealth figures from the Sunday Times’ Rich List (STRL), we investigated what a wealth tax might look like for each of Britain’s billionaires under three of the options suggested by the commission. Each option is designed to raise the same amount of money in aggregate, but the bill for billionaires differs widely from one to the next.

We made a few simplifications. We’ve assumed that each individual, couple or family on the rich list will be taxed once, rather than paying several separate bills. In reality each person would get an initial tax free amount (i.e. up to £10 million for options 2 and 3 and £250,000 for option 1), but the difference would be relatively minor. We also assumed no noncompliance.

Here are the ground rules, tax takes and sample individual tax bills for each scenario:

  • Option 1: For five years, all wealth above £250,000 is taxed at a flat rate of 0.64 per cent. Billionaires pay a total of £12 billion.

  • Option 2: For five years, wealth between £500,000 and £10 million is taxed progressively (i.e. on a sliding scale). All wealth beyond £10 million is taxed at 1.6 per cent. Under this plan, billionaires bring in a total of £29 billion.

  • Option 3: For five years, wealth between £1 million and £10 million is taxed progressively. All wealth beyond £10 million is taxed at 3 per cent. Under this plan, billionaires bring in a total of £55 billion.

Our findings suggest that, if the government were to opt for option 3, which falls most heavily on the super-rich, the 147 billionaires and billionaire families on the STRL could cover the entire £50 billion cost of furlough to date. Under this option, the billionaires would pay a combined total of £55 billion, while the UK’s richest man, Sir James Dyson and his family, would be charged around £2.43 billion. 

While the Dyson family would face a bill in the billions, those towards the bottom of the billionaire list, like Mayfair hotel-owner Jasminder Singh and Boohoo owner Mahmud Kamani, would be charged £150 million each.

Although simplified, the numbers give new clarity to the impact a wealth tax would have for  the ultra-rich – and for the exchequer. Don’t expect Sunak to go for it next month, but don’t expect the idea to go away soon either. Progressives from France (Thomas Piketty) to Massachusetts (Elizabeth Warren) have seized on the pandemic as the moment to get serious about taxing wealth.

Oh, and if it ever happened it would probably have to come as a surprise. As Stuart Adam of the Institute for Fiscal Studies notes: “If people had advanced notice, it’s more likely that they might try and get themselves or their wealth out of the country.” 

To join us alongside Dr Advani at the money summit to debate the case for a wealth tax, please sign up here. Deborah Meaden and Martin Wolf will be on the panel too.

Wealth investment, fairness, prosperity

No ski, no money
This time last week Italy’s ski resorts thought they were going to be allowed to reopen on 15 February (last Monday) to take advantage of some of the best snow in years. They weren’t. Word came from Rome on Sunday evening that they were to stay shut, and it now looks as if, like France’s resorts, they’ll have to stay shut for the whole season. As the FT reports (£), investments in sanitising equipment, heat lamps and gazebos have all been in vain. The frustration is all the more acute because Austria and Switzerland have kept their resorts open even though last year Ischgl in the Tyrol proved one of the most effective Covid incubators on the planet. Sod’s law says next season there’ll be no Covid and no snow.

New things technology, science, engineering

The great AI-scape
Artificial intelligence may help Europe’s first post-Covid holidaymakers take to the skies this year. Residents of Israel and Greece with Covid-19 vaccination certificates can take holidays in each other’s countries from as early as 1 April, after their governments struck an AI-powered deal. Israel has vaccinated a greater share of its population than any other after using AI to track and trace high-risk patients. And in Greece, an AI-led system can now identify which travellers to admit, and which to test. Question: could Britain’s prowess in AI help restart its desperate travel sector too? That’s one to put to Greek and Israeli government representatives at the Tortoise AI Network next Tuesday.

Our planet environment, natural resources, geopolitics

Trouble downstream
What do common carp, largemouth bass and tilapia have in common? They’re thriving in most of the world’s great rivers because they like still water and the rivers are so heavily dammed. Most other species are suffering. Rising temperatures, pollution and the removal of water for irrigation are other factors making life hard for fish in all but 14 per cent of the world’s river basins, according to new research in Science, also written up in the Guardian. A lot of this is familiar. Shocking levels of pollution in China’s rivers were widely noted after David Attenborough pointed out in 2018 that Europe was responsible for much of it. But one finding in the Science study is striking. It says 53 per cent of river basins have undergone marked changes because of human activities. Is that all?

The 100-year life health, education, living, public poliCY

Vaccinate everyone already
Boris Johnson hoped to lead the charge in calling for the rich world to give its surplus Covid vaccines to developing countries at a G7 zoom call today. But Macron got there first. In fact the French president went one better in an interview with the FT (£) and said it wasn’t enough to wait until we’re all safe in the rich North and then give surpluses away. He says the US and Europe should be giving 5 per cent of their vaccines to developing countries now. Macron’s epidemiological logic is unassailable, but withholding vaccines from your own voters while giving them to others’ is a hard sell. NB: stubborn defenders of Europe’s slow vaccine rollout like to note France and others are ahead of the UK in terms of double doses. Will that make a difference? Israeli data suggests not: it shows one Pfizer dose giving up to 85 per cent protection all by itself.

Belonging identity, society, beliefs, countries

Myanmar’s democrats
Giant letters covering the whole of one side of a dual carriageway in Mandalay spelled it out for passing satellites: “We Want Democracy.” That was a couple of days ago. Since then the Economist has reported (£) that thousands of Myanmar’s civil servants are going on strike in 245 districts and 21 ministries. Railway workers have downed tools too. The banking system is grinding to a halt, and drivers are deliberately gumming up city streets by stopping in the middle of them. This coup started efficiently but as we’ve noted, it isn’t going to plan. On the other edge of Eurasia, in Belarus, democrats’ efforts have been determined but so far in vain. Could Myanmar confound the generals (and China) and break democracy’s bad run?

And finally… if you’re homeless or just leaving jail in New York, and need to look sharp for a job interview, a local charity may have just what you need. The son of the late Alex Trebek, host of Jeopardy! for 37 years, has donated his dad’s wardrobe, and it includes 300 ties being given to people who actually land jobs. 

Thanks for reading, and do share this around. 

Kim Darrah

Giles Whittell

Photographs by Getty Images