A wealth tax won’t cure our debilitating tax-and-spend addiction, Mr Clegg. But spending cuts will
Aug 2012 29

Liberal Democrat leader and Deputy Prime Minister Nick Clegg has called for a fresh tax raid on the rich. Mr Clegg cited the prolonged economic stagnation as a reason to hike taxes further still:

If we want to remain cohesive and prosperous as a society, people of very considerable personal wealth have got to make a bit of an extra contribution. In addition to our standing policy on things like the mansion tax, is there a time-limited contribution you can ask in some way or another from people of considerable wealth so they feel they are making a contribution to the national effort? What we are embarked on is in some senses a longer economic war rather than a short economic battle.

It’s clear that the Deputy Prime Minister just doesn’t get it. Almost everyone is struggling financially and taxed too heavily already, so trying to load a burden on the rich might seem reasonable to people who are rightly angry about how much tax they are lumbered with themselves. But a new, stronger, more powerful dose of fiscal crack cocaine is not the answer to our government’s debilitating tax-and-spend addiction.

Former Labour Chancellor Denis Healey warned successors off the practical difficulties involved with a wealth tax:

We had committed ourselves to a Wealth Tax: but in five years I found it impossible to draft one which would yield enough revenue to be worth the administrative cost and political hassle.

The 2020 Tax Commission’s final report, A Single Income Tax, fully explains (starting on page 323) the overwhelming case against wealth taxes from the unfairness of ‘dry charges’ to the devastating economic impact of ‘capital flight’. Recently, the Irish, Dutch and Italian governments have cited capital flight as a reason why they have all abandoned their plans for wealth taxes. In addition, the report also quotes the Financial Times reporting that the Swedish government’s decision to scrap its wealth tax in 2011 will have almost no effect on its finances because the tax was so damaging to the Swedish economy:

The move will have virtually no effect on government finances. The tax raises around SKr4.5bn a year from just 2.5 per cent of all tax payers, but it has been blamed for years of massive capital flight from the country estimated at up to SKr1,500bn.

Excessive spending and high, complex taxes are the cause of the economic malaise we’re stuck in. More taxes, especially a wealth tax which even Dennis Healey rejected due to its disproportionate economic damage, are not what we need to reinvigorate out economy. We need to simplify and cut taxes to boost our economy and we need to cut spending to close the deficit and pay for the tax cuts we all need.

Rory is the Research Director of the TaxPayers’ Alliance. Rory’s work is focused on tax policy and economics, with a particular emphasis on tax simplification.

  • RR

    they (the politicians) only know spend spend and spend some more. We have not seen any austerity whatsoever. This global financial crisis, in a strange way, could be a blessing becuase it will force government to stop and reduce the size of the State… finally.

  • Better off on the dole

    I personally am sick to the back teeth of working all the hours God sends, just to have a very basic low income… then to have the vast amount of tax I pay frittered away to ‘all and sundry’ –

    Britain is treated like the cash machine of the world – lost causes? certainly Mr Infidel – we will house you, send money back to your homeland, feed you and give you cash…! (says the Government)

    I am seriously thinking of packing my job in as I would seriously be financially better off by time I had my rent paid, council tax paid, childcare paid, no travelling costs, etc… because working yourself and trying to pay your own way for your family – does not pay !!!

    (If you cant beat em – join em !)
    We need to NOW stop giving the money away to these ‘Infidel’s’ that have never paid anything into the system – whether or not they were born here !! The country needs to keep the money that is generated in this country……

    • ARW

      If you’re better off on the dole you clearly don’t earn enough money to be affected by this proposal.
      After working for 5 years in service delivery and 8 with struggling families I can say that many are certainly better off in work and only a minority are not.
      The problem is, what type of work, and for how long?
      At the expense of public success big companies have been allowed to cut jobs and maximize profits for their shareholders. This has influenced small business to do the same, instead of being innovative with products and evolve their customer bases.
      Look at slow moving agriculture and the poor strategic policies that accompany it.
      What we should be doing is making best use of what we have and making sure the rich simply cannot avoid paying their fair share, which should be a higher share than the poor.

      An excellent example is the JobCentre which has been forced to cut off its useful arm to be turned into a referral scheme. Who picked up the useful paid work? Private companies already in bed with the Government.
      Huge contracts, dishonest operations, massive waste.

      Before we worry about who is getting taxed surely we should start to understand how were actually wasting the money we receive?
      We just seem to attack the public sector for its shortcomings, never considering the operational issues they face, and couple that with private sector support; yet the private sector doesn’t support us.

      As with Councillors, many normal people cannot afford to be a Councillor yet we criticise them for being paid too much, its funny, we want the best in private industry and believe people should be treated with financial consideration but when that model moves o the public sector everyone cries foul.

  • pw1

    This is left wing Lib dem policy
    Cleggs statement coincides with South
    Lakeland District Councils notification to second home (read retirement home
    owners) that they
    have decided to increase the Council tax on second homes
    by 10% to pay for council spending. Tim Farren – Lib dem MP for this area

    left wing policies are well know – he is vehemently opposed to ALL second
    or investment properties. His argument, like Clegg, is that wealth

    represents inequality and should be taxed and redistributed – read
    wasted. As far as retirement and second homes are concerned these MP’s are totally illiterate re the tourist revenue and income opportunities they provide
    for local people.

  • Dave

    Basically right and wrong.
    Right, we need to stop spending so much.
    Wrong that we should avoid taxing the rich.

    I agree we should stop so much spending. We should do this by having a genuine look at where we spend the money and just stop some things entirely. We spend a HUGE amount on hundreds of thousands of civil servants looking after ‘tax’ and ‘benefits’. STOP this by paying a single flat benefit and taxing at a single flat rate. Hundreds of thousands of pointless paper shuffling jobs gone at a stroke, several billion of pointless spending. Similarly the DVLA and the stupid waste of effort called ‘road fund licence’ can also go – an insurance disc can be issued by your insurance company and fuel tax more than raises enough to cover pollution etc (and if it doesn’t then transfer a few extra pence onto it). Another one is ‘local tax’ fund councils based on number of people living there direct from central single tax funds and be done with it. And of course the BBC licence fee…. in fact there are millions and millions of pointless jobs sucking money from the real economy into a welter of different ‘rip the public off’ schemes. There are huge numbers of other areas that can also be scrapped – local councils ‘recycle’ (but refuse to allow reuse) at tips – just get rid of local council tips and let private contractors run them and allow them to run them with reuse as a priority. All the council gyms charge – why? I’ve already paid for the damned gym, you complain I am over weight…. let me exercise in the facilities my tax has paid for, let me exercise free, the costs of all the accountants and reception staff, till maintenance, computer systems etc. etc. can all be saved. And just DON’T get me started on the pointless tons of money spent on more admirals than the navy has ships, on the foreign cars that bring NO work to the UK, the planes bought from America that don’t support a single UK job or R&D facility.
    Thats the last point really – BUY BRITISH, if British tax payers money is spent it MUST be spent HERE, not in Germany, France, Italy, America….. …. …. …. …

    b) The rich are just that, rich. They are NOT and I do repeat NOT either significant brains, significant business men or anything like that. They FAIL dismally at their job, their companies (or banks even) go bankrupt and then they move on to an even better paid position courtesy of their friends. No sensible, normal or competent person is allowed into the cosy club of multi million pound a year failures.

  • Dave

    OH GOD!!!! Another thing, I tried to post with my REAL email address but your address checking software is CRAP and DOESN’T WORK!!!!! Please go and review it, it really isn’t damned difficult!!!!

  • Soren Lorenson

    I completely agree with Dave. One only has to look at economies like Hong Kong and Singapore where the tax rate is low and fair to see that, because tax is easy to collect and regarded as fair, everyone pays it.

    However, although the UK government constantly lectures the private sector about transparency it avoids such transparency when applied to tax. What is the basic rate of income tax? 20%??? No, of course not. It is actually 45.8%. That’s 20% income tax, 12% employees NI and 13.8% employers NI. It’s hardly surprising that employers are not falling over themselves to create new jobs.

    Dave fails to mention VAT, a tax that must cost significantly more in business administration and accountants fees that it actually raises.

    Finally the government should immediately stop funding voluntary and lobbying groups that do nice things. I object to paying fuel tax which is then given to people like Transport 2000 who lobby to increase fuel tax.

    The government needs to be radical. Have a tax ‘A-Day’ where we loose all taxes and gain a simple basic flat tax on income.

  • http://www.johnpickworth.com John Pickworth

    Clegg says “a time-limited contribution”. Yeah right, like the income tax we all currently pay was introduced temporarily to pay for the Napoleonic Wars. In that instance it was eventually repealed only to be quickly reintroduced the moment the Government realised their wine cellar was looking a little bare.

    Remember also John Major increasing VAT to pay for the transitional relief to smooth the move from Poll Tax to Council Tax. Once the relief expired, did they cut VAT? Did they hell!

    The point is, once they’ve put their hand in your pocket/purse they never take it out again. And in the case of the original income tax this too was a ‘wealth tax’ levied upon the very rich… try telling that to today’s minimum wage earner.