The UK is especially vulnerable to the ill effects of a wealth tax and could suffer a near £100bn hit to its GDP in a decade were one introduced, a paper out today has argued.
A two per cent tax applied to those with a net wealth of £10m would incur a 0.4 per cent reduction in the UK’s annual GDP growth rate, the study’s author says, resulting in a £1,107 hit to wages.
The report, published by free market think tank the Taxpayers’ Alliance (TPA), runs counter to several recent calls for a two per cent annual levy on the wealth of the super rich ahead of this week’s Budget.
And shortly after, a coalition of high profile campaigners and economists – including Greenpeace and Capital in the Twenty-First Century author Thomas Piketty – signed an open letter arguing the levy could help fund climate change initiatives and other major spending.
But the TPA study argued that as opposed to generating revenue for the Exchequer, an exodus of the wealthy would mean a wealth tax levied on the top one per cent with a threshold £1m would result in a reduction of taxable wealth of £260bn.
“This important research by the TPA confirms that a wealth tax would do immense damage to the UK,” Conservative MP Andrew Griffith said.
“Wealthy Brits already pay top whack with the top one per cent of earners paying around 30 per cent of all income tax and in general we have too many rather than too few taxes.”
The paper also said the UK economy would be especially vulnerable to a tax on individuals’ net wealth, due to the proportion of non-fixed assets.
The dominance of the UK’s services sector means that unlike an economy powered by agriculture, mining and manufacturing, businesses would find it far easier to emigrate, its author argued.
The period of ultra-low interest rates and quantitative easing between 2009 and 2022 prompted a ballooning in asset values, and has prompted growing calls for a wealth tax.
Finance ministers from the G20 – a group of the 20 of the world’s largest economies – agreed in June to work on a new proposal to tax the ultra rich tabled by this year’s hosts Brazil.
But any momentum behind the proposal has often been dampened by well-documented practical pitfalls, including difficulties evaluate an individuals’ net wealth and the ever present risk of a phenomenon known as ‘capital flight’, meaning rich people leaving the country to avoid the tax.
John O’Connell, chief executive of the TPA, said: “Imposing a wealth tax would be the peak of economic madness given the UK’s vulnerability to capital flight and the already punishingly high rates of tax imposed on the UK’s top earners.
“And our analysis demonstrates that the long term hit to GDP would be catastrophic, meaning the spending binge that many MPs are pushing for will leave a horrible hangover for taxpayers.
“Rachel Reeves should shut down all talk of a wealth tax, now and in the future.”
The Chancellor has previously ruled out introducing a levy on wealth.