Is a wealth tax the key to the region’s post-pandemic prosperity?
Coronavirus has caused unprecedented issues to the UK (and world) economy. Given these circumstances, solutions may need to be just as radical. However as PSG Wealth Management MD, Paul Gilsenan, examines, a wealth tax may not prove the answer. The many fallouts from the coronavirus crisis has resulted in a large and crucial rise in government spending. While ultra-low interest rates mean borrowing is sustainable for the moment, the levels required are giving justifiable speculation as to the means that will be used to bring them back under control and the role the North East region will play.
Spending cuts introduced after the financial crisis weakened public services like the NHS, which have needed emergency funding to cope with the coronavirus. Boris Johnson’s manifesto pledge to ‘level up’ the UK’s local economies takes the reintroduction of austerity measures off the table. That means the government may look to increase revenue from taxation.
So, how about a wealth tax?
In theory it seems logical - a recent study out of Manchester Metropolitan University proposed that a one-off, 2% wealth tax on individuals’ assets could generate £300 billion, alleviating a massive portion of the government’s £350 billion deficit. But can it really be so simple?
Who would end up paying a ’wealth tax’?
This will no doubt prove a very sensitive issue. On the one hand there is the argument that older generations are better placed to ease the burden on younger generations, who have been hit by the economic impact of both the 2008 financial crisis, and now the coronavirus. However, with so many assets tied up in property and pensions, it presents several challenges for a wealth tax, not least the political fallout opposition to such taxes could generate.
Isn’t wealth already taxed?
Another suggestion is to look at alternative taxations, such as increasing council tax, Capital Gains Tax (CGT) and / or Inheritance Tax (IHT) which are increasingly coming into the spotlight.
A report from the All-Party Parliamentary Group on Inheritance Tax and Intergenerational Fairness published earlier this year called for reform of IHT, while chancellor Rishi Sunak announced a surprise review of CGT in July.
This opens the door to higher taxes on wealthier individuals, and could come in the form of reduced allowances and reliefs, or new rates. This would stop short of a more radical taxation on ‘wealth’ per-se.
While we can be sure that tax rises are coming, we’ll have to wait until the chancellor’s Autumn Budget to learn a little more about what these rises might look like and what the fallout across the region will be.
The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.
This was posted in Bdaily's Members' News section by PSG Wealth Management Ltd .