No wealth levy before tax overhaul, chancellor urged

Think tank calls for ‘badly designed’ existing levies to be changed first.

Chancellor Rishi Sunak has been urged to focus on reforming the current tax system before introducing new charges on wealth.

The Wealth Tax Commission, a group of tax experts and academics, last year called for a wealth levy on all individual assets worth more than £500,000.

Money raised would help repay state support during the pandemic. If it was charged at 1% a year for five years this would raise £260 billion, or £80 billion with a threshold of £2 million.

But the Institute for Fiscal Studies (IFS) has instead suggested the chancellor focuses on reforming “badly designed” existing levies such as pensions tax, council, tax, inheritance tax and capital gains tax.

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Paul Johnson, director of the IFS, says Sunak will have a “host of tough choices and trade-offs to make” as he steers the economy and the public finances into calmer waters.

Johnson says the chancellor must avoid exacerbating wealth inequalities further. He adds: “This means looking at tax and spending decisions according to how they affect those with wealth, and those without.

“It also means making sure that the Treasury keeps an eagle eye on how public money is spent.

“We do younger generations no favours at all if we allow public debt to rise inexorably unless we are really very sure that we are getting good long-term value for the money being spent.”

Johnson adds that the young will get the benefits of spending that enhances growth but will also be on the hook for the debt incurred.

Other commentators have also questioned the effectiveness of a wealth tax.

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Stuart Coombe, chartered financial planner for Old Mill, warns that it would trap millions of people who are by no means wealthy.

He says: “Having a wealth tax would be a radical way for Sunak to raise some much-needed revenue to help combat the cost of the various financial support packages given out in 2020 and given it is seen to target the better off in society there would likely be reasonable public support.

“However, the suggested threshold of £500,000 would cause consternation among the middle classes who would be likely to get caught.”