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Should the UK have a wealth tax? The Wealth Tax Commission five years on
01:28:26
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- [00:02]
A
Welcome to the LSE Events podcast by the London School of Economics and Political Science. Get ready to hear from some of the most influential international figures in the social sciences.
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B
Welcome to the LSE for this lecture marking five years since the Wealth Tax Commission published its report on whether the UK should have a wealth tax. The event is co hosted by the LSE Law School, the International Inequalities Institute and the center for the Analysis of Taxation. My name's Tim Besley and I'm a professor here at the LSE in the Economics department and I'm delighted to be joined by everyone here in the old theatre and by those watching on live stream. A few logistics before we get started. The hashtag for this event is LSE Events. Please could everyone remember to put their telephones on silent this evening's being recorded and will be released as a podcast subject to there being no technical difficulties. We're not expecting any fire alarms, but if there is a fire alarm, then please follow the signs to the exit and make your way to the fire assembly point on Sheffield Street.
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Before introducing the panel, I'll say a few short words.
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And then there'll be about 40 minutes of Q and A with the panel before opening up to the audience and there'll be an opportunity for you to ask questions and also for me to draw from the online audience and I'll explain all that when we get to it.
- [01:51]
So we have here on stage three of the principal co authors from the Wealth Tax Commission and I actually chaired the launch during COVID five years ago. So it's particular delight to be here in person with you all rather than that rather anonymous and creepy experience we all had for that period when we were doing everything on video conferencing. As I mentioned, the Wealth Tax Report was published at the height of the COVID pandemic and since then many things have changed, but the debate about a wealth tax crumbles on.
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So we thought it would be a good time to reflect on and take stock of what's been learned, looking both backwards and forwards.
- [02:47]
Of course. We're less than a week away from the Chancellor's budget, which unsurprisingly did not include a wealth tax. I'm sure we'll get into some discussion around that and what the budget means for taxes on wealth and wealth inequality as we go, and also for the prospects for a wealth tax in future. Before I introduce the panelists, let me say a little bit about the Wealth Tax Commission for those who are not familiar. First of all, what is a wealth tax as it's known in general, it's a tax on the ownership of wealth. It's levied as a percentage of the total wealth a person has, taking the value of all their assets minus any debts. The UK has never had a wealth tax, although the labor government in 1974 got very close to introducing one. I think it's fair to say that since then, until the Wealth Tax Commission five years ago published their work, there was relatively little discussion of a wealth tax, or at least detailed research on that topic. The Commission certainly changed that. Their report had more than 30 evidence papers underlying their recommendations and has become a key reference for anyone interested in wealth taxation, both in the UK and and abroad. People tend to have strong views about a wealth tax one way or another. It's totemic, but often not well understood. So to help to inform this debate and share the reflections on the Wealth Tax Commission, it's great to have all three commissioners joining me this evening. So, a quick introduction. Aaron Avani is Professor of Economics at the University of Warwick and one of the two directors of the center for the Analysis of Taxation. Emma Chamberlain is a tax barrister at Pump Court Tax Chambers and a visiting professor at the LSE International Inequalities Institute. And Andy Summers is Associate professor of Law at the LSE and also Director of the center for the Analysis of Taxation. So let me conclude by thanking you all for being here and we'll get on with the discussion.
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So I'm going to ask the panelists some questions to sort of bring the topic to life and to get you all up to spe speed with the issues. So I'm going to start with Aaron and can you tell us just a little bit about how the commission came about? And also how did the three of you get together and decide to work on the topic?
- [05:20]
C
So the commission actually came about. One, the beginnings of the commission came about one April afternoon. I was sitting in my garden. It was Covid, so we were all sort of stuck at home. It was that kind of warm part of the year that we were having. And I had two different phone calls from journalists talking about the fact that this new Covid thing that had been around for a couple of weeks now had shut everything down. Government was pushing money out of the door, trying to keep people employed by just giving them cash and the debt was just going up and how are we possibly going to pay for this whole thing? And would a wealth tax be one of the ideas? And I thought this and that about taxes in general. I mean, I'm genuinely working on tax broadly, but I hadn't thought very hard about a wealth tax specifically. And so I did what any good academic would do. I gave them, on the one hand, this, on the other hand, that. I mean, economists especially are very good at those kind of answers. And at the end of the second phone call, I felt very unsatisfied because I sort of thought to myself, it's great that people are thinking of me to come and ask me this kind of question if I'm giving such an. On the one hand, on the other hand answer, that doesn't say a lot for the state, at least of my knowledge about wealth taxes. Because in a world in which a government were ever to ask me a question about this, I wouldn't have a strong opinion, I wouldn't be able to say yes or I wouldn't be able to say no. So I've been working for a long time with Andy and I rang him up, did my phone a friend thing and said, hey. So I've just given two really equivocal answers back to back, and that's unsatisfying. Am I missing something? Is there some really good research on a wealth tax that I should know about that I've completely missed? And Andy gave me the reference to the same work that I knew, which was back in the 1970s, and said, oh, yeah, there was all this work that was done back in the day, et cetera, Sanford and various people. And I thought, well, that's very unsatisfying. Also, all our work is in a secure room in HMRC in the data lab, and we're locked out from that. So could we make some work for ourselves or keep us busy for a couple of weeks as something to write? Because we thought Covid would be over fairly quickly. So what could we do for two or three weeks? Put something together? We maybe write a little note on this. We started, we talked about it and started a bit of work and realized that the question was a bit bigger than everything that we could solve. And there were a lot of really practical challenges, lots of nuts and bolts. How do you actually deal with trusts and complicated things and what would people really do in terms of what the practitioners would get involved in? So we did our extended phone a friend and phoned Emma, who, as Tim already mentioned, is, among other things, a barrister working on taxation for very wealthy people. And so who knows all of the details of how these things work? And we, as the three of us sort of brainstormed online, thought about all of the different questions you would need to answer. I came up with a list of 13 major questions. We then quickly decided this was not two weeks worth of work and it was not enough. It was not something the three of us alone could tackle. And so we then brought on lots and lots of additional people to work with us. In doing that, we added a whole bunch of additional papers. In the end, we had 38 papers and 51 people involved. But that was the sort of route to which we ended up starting with some small idea of something that would be interesting and turned into actually what was quite a major undertaking to try to answer this question of would a wealth tax be a useful possibility in the context of trying to raise money.
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B
For Covid and Emma. I was going to ask you about 50 contributors. That's a huge number, or 50 plus contributors.
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Did you intend originally to have that number of people? That must have been a huge undertaking to get them all.
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A
We definitely didn't. I mean, we started, I think they were ending up 13 chapters. And then as we went on, we realized we needed more data on how other countries did tax wealth, because obviously there were quite a few countries in the 90s that taxed wealth as a wealth tax subject to a wealth tax. So we wanted to sort of find out what went wrong, why did they change it? And then we also looked at current countries. France, I suppose, to some extent, Norway, Switzerland, Spain have a remaining wealth tax. So then we looked at that and said, you know, how do they do it? How does it work? Is it any good? And that meant getting involved with other contributors, most of whom were practitioners who didn't have that much to do because of COVID So they were quite happy to sign up to this. I think I saw it slightly in less practical terms than maybe you did. I think I saw it as an interesting academic exercise because we hadn't had any data on this since 74. And the green Paper was very, very.
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Very skeletal, really. And we'd had Ireland try to do a wealth tax. And then there was obviously quite a lot of debate of piketty, et cetera, about taxes. So it seems sort of like whenever there's a problem in the world, someone says, let's have a wealth tax. So it seemed like, why not look at this in a bit more of an academic, rigorous way. And I think, although obviously nothing we recommended came to pass, I do think it is a useful body of academic work that people can still refer to. I don't know how up to date we keep it, and maybe we should keep it a bit more up to date, but I think it does have a valuable role because there's stuff there that you just can't find anywhere else.
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B
I'm going to turn to the big headline conclusions they reach, but I'll just ask Andy. It's known as the Wealth Tax Commission. But who actually commissioned you? Sometimes people are a little, you know, there's a very skeptical conspiracy theory about the people who commissioned you, wanted you to find a specific answer, but I assume you're going to tell us that wasn't the case.
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D
So actually the name Wealth Tax Commission, that came from Robert Watts at the Sunday Times, who had just taken over then as the compiler of the Sunday Times Rich List. And I think at the time we were calling ourselves something some very boring academic working title like Project on a Wealth Tax or something like that. And he wanted to write an article about this project. So, and he was talking to me and he said, you know, we can't use this Project on a Wealth Tax. What's that? What? You know, what, how about Wealth Tax Commission? And I said, well, you know, we can't call ourselves that, Robert, but you know, if you, if you were to call us that, then we would, you know.
- [11:30]
So actually the first appearance of Wealth Tax Commission anywhere is in this article that he wrote in sometime in summer 2020, and we adopted it after that. But I mean, I think more broadly this idea of kind of commissions on tax policy that does have quite a long history. I mean, through the kind of mid 20th century there were a series of royal commissions on different areas of tax policy that really were commissioned by the government panel of independent experts to review a particular area of tax policy making. And their reports, you know, carried a lot of weight. I think the one in the, in the mid-1950s was what then gave rise to Corporation tax. And the last one of those that we had was in the 1970s. Since then there have been a couple of other sort of landmark independent reviews of taxation that weren't commissioned by the government, but which are kind of regarded as sort of landmark pieces of work in this field. So the Mead Report and the Murley's review, both of those were led by the ifs. I know, Tim, you were on the Merlies review.
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So I mean that's, you know, whether or not you would put the Wealth Tax Commission in that pantheon, that's not something for us to sort of judge, but it's, it's a major piece of work. And I think this idea of having independent commissions look at tax policy, it's sort of fallen out of favour in terms of government commission reviews. But there may still be something to be said for that model.
- [13:14]
A
I think also quite a lot of the contributors, the majority of them were quite against a wealth tax. It wasn't as if they were sort of trying to get to one argument or another. I think people started out neutral and then became, as the problems emerged, became more equivocal about it.
- [13:31]
B
Now let's get to the substance and for those who are not familiar with what they said, maybe this is a moment for a sharp intake of breath. The main headline proposal of the Wealth Tax commission was for 5% in your first instance one off wealth tax to be paid over five years. So what led you to that? Emma, I'm going to ask you first, what led you to.
- [13:54]
A
That's one thing we could possibly agree on because we disagreed on quite a lot of other things. But actually I don't think we positively recommended a one off wealth tax. We said if you are going to raise taxes this is one way you could do it with less damage to the economy. And that argument may still hold. I think the reason that it didn't come off the ground were probably as much political as anything. I mean at that point it was very cheap to borrow so no politician ever really wanted to those taxes if they could go and borrow because borrowing was so cheap. I also think we did make a mistake calling it a wealth tax. We should have called it a Covid recovery tax. Everyone would have been much more pro it. And I think the other problem was that although we didn't ever recommend thresholds and rates, we just gave examples people did take. We were the point we were recommending a 5% above 500,000. We didn't actually but when you read the report you can sort of see how people get to that. And I suppose the biggest problem for us in recommending anything was that we all were agreed that it should be if we were going to have a wealth tax, you were going to have to have it comprehensive. It wasn't just going to be on houses or businesses or pensions And I think the fact that we made it comprehensive means that we annoyed everybody and unfair question.
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B
But maybe you can answer this. If you did a 5% one off wealth tax today, roughly how much do you think on the terms of everything over 500,000, roughly how much we were talking about raising?
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C
So 5% one off wealth tax back in 2020 was something like a quarter of a trillion pounds. So 250 billion, we think that's slightly larger given that wealth has increased Collectively since then. But it's hard to know because the ONS as well is that on the.
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A
Threshold of over 500,000?
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C
500,000.
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A
And obviously the more, the higher the threshold.
- [15:47]
C
Yeah. And if you go for a higher threshold, you get less. So we said if you were to have done a 5% one off wealth tax in 2020, above 2 million pounds, it would be more like 80 billion rather than 250 billion.
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B
And for those of you who were following the budget debate last week, you'll know that's a very substantial tax increase.
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But let's talk about the one off versus the recurrent. So you reached the conclusion, Aaron, that it should be a one off.
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Has your view shifted on that now? If you were proposing it today, would you be going for an annual wealth tax? Presumably 5% would be quite a high annual wealth tax.
- [16:22]
C
Yeah, yeah.
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B
At least in some people's eyes. Let's not prejudge, maybe have different views.
- [16:27]
C
Certainly I don't think anywhere has implemented and there are many examples of annual wealth taxes. Nobody's implemented one with a rate as high as 5%. That would be very high. I mean again, some people might argue for it, but it's certainly not something we've seen. Just to give you a bit of background, I mean economists are usually, even economists who are against wealth taxes are usually willing to accept a one off wealth tax in some circumstances. The case for the one off wealth tax, the reason economists like the idea of one off taxes is if you can explain why there's a specific circumstance that's unusual, that's kind of credibly one off, then what you can avoid is the negative behavioral effects that come with taxes. So all taxes change behavior. Sometimes you want that you tax carbon because you want people not to emit carbon, but you also tax income. And that does have some effect on people's willingness to work. So the concern with a tax on wealth is that you might affect willingness to save. Maybe we'll come back to that point. But with a one off wealth tax, you don't get the opportunity to change your historic decisions about saving because you've made them up to now. And beyond this point, any changes you make in your behavior won't have any effects on the amount of tax you owe. So in the context of COVID where we were saying if a government decided, and Emma's exactly right, we didn't say governments ought to raise money after Covid. We said if a government were going to do something after Covid, they shouldn't do something as silly as increasing national insurance, which turned out to be exactly what they did do. What they should do is if they need to raise money to pay off some of this debt that we've built up, a one off tax would currently be credible in the sense that there really has been an external shock that unlike anything that we've seen in generations, genuinely a government telling you you had to stay in your home, you couldn't see your family, you were locked inside. That's really the kind of circumstances where one off taxes have happened in the past. Not in the uk, but you can see in other countries. One off wealth taxes happened after the first and second World Wars. The UK also did have a one off tax on Banks in 1981 under Margaret Thatcher, because we said banks have had a special unusual shock. Interest rates went up a lot and the government's therefore giving relatively more cash to banks. And so they had a one off tax then as a corrective. So there's a case that you could have for a one off tax. And what we said was that there's a kind of clear rationale right now for why that is something you could do. We said conversely, when we're talking, if you were talking about a threshold as low as half a million pounds, which we said, as Andy said, we have made no recommendations on what the threshold should be. But if you were going for a kind of low threshold tax, which is more similar to what you would see in Norway or Spain or Switzerland, which are often seen as examples of a successful annual tax, and certainly they're discussed as examples, those kind of low threshold wealth taxes generally wouldn't be a good idea because there you would be affecting people's savings behavior in their ability to save across their lifetime. And in a world in which we already have a capital gains tax and an inheritance tax and those taxes don't work well, again, we actually went through in quite a lot of detail in the report how to improve those existing taxes. It wouldn't make sense to levy a new annual wealth tax at a low threshold when you could actually, or you should actually go ahead and fix those other taxes which have so many big problems in them.
- [19:31]
B
So Andy, I want to push you a little bit more on the difference between a one off and an annual tax. One of the critiques of even a one off tax is that once the government can measure your wealth, there's really nothing to stop them coming back repeatedly and asking for more and more of it. Was that part of your thinking about the one off versus the annual? Would it be Incredible to have a one off in your view?
- [19:54]
D
I think definitely the credibility of a one off wealth tax was, you know, it genuinely was, as Aaron described earlier, the motivation for the original project and it was the context in which, you know, we published this report in December 2020, which was the absolute peak of the COVID crisis. And I think at the time everyone was thinking of COVID as a once in a generation kind of crisis. And so, you know, that that provided the most credible kind of foundation I think you could have for a one off wealth tax. Obviously, as things transpired and we moved out of COVID we then went into the energy crisis and you know, that felt like another once in a generation public, the shocks of public finances quite shortly after. And I think it becomes more difficult in that kind of context. So I think now to characterize something as a.
- [20:53]
As a one off would be a very difficult sort of feat for a government to pull off credibly. And if you don't have that credibility, then really a one off wealth tax has all of the kind of economic properties of a recurring.
- [21:10]
B
And Aaron, if you think about one of the sort of standard arguments about wealth taxation, I suppose it's diminished to some extent. If it's one off is the impact on saving and on enterprise, do you have any time for those arguments or do you not really think that's a serious consideration?
- [21:28]
C
Yeah, and one of the things we actually looked at in great detail during the commission was the evidence for those kinds of effects. I mean clearly we would expect that as I said earlier, if you tax something then people do a bit less of that question is kind of quantitatively how large is that effect and how concerned should we be? We should clearly be somewhat concerned about the effect from a theoretical perspective. So in practice, how much should we be concerned about it? Again, when you start at a sort of lowish threshold and you're taxing the average person to some extent as the average person you are for them, a lot of their wealth is something they are building up over the course of their life and then spending down in their old age. And you don't necessarily want, when you're doing an annual tax, want to distort that savings decision. That's just people trying to move money over time. The thing we said at the commission was in some of the reports was actually when you go further up the wealth distribution, you end up at levels of wealth where this kind of life cycle profile is much less visible. The kind of wealth that people have, when you get further up the distribution is not really about something you're trying to smooth out over your lifetime. It's wealth that will be held for other purposes. And as actually the Mead review that Andy mentioned earlier pointed out, if there are other reasons people hold wealth beyond just the desire to smooth. So if you're holding wealth because it brings you some sort of power that you can use from having that wealth, if you're holding wealth because you just get some pleasure from having large amounts of it, you're competing with somebody else to be wealthier. If you think that there are any negative consequences from concentrations of wealth, some of which, for example in the recent academic literature are points around the fact that having higher levels of wealth, concentrations of wealth actually reduce aggregate demand and that has a sort of negative demand externality on terms of growth more broadly. And those are all cases where you might want, actively want to have a wealth tax starting at a higher threshold because for those levels of wealth, actually there are other competing factors that might offset this point around savings. You might actually want to tax that wealth because you are concerned about some of those other factors.
- [23:25]
B
So, Emma, here's a question we really need some of your expertise to, to answer, which is the difficulty of administering. Actually you deal a lot with wealthy people. You know the issues involved. What do you have to say about that administrative difficulty?
- [23:40]
A
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- [24:08]
Well, I think all capital taxes, inheritance tax is a particularly easy tax to administer and an annual wealth tax has particular problems because it's not based around an event like a transaction, but you've got some money that you've realised or a one off event like a death. It's, it's coming back annually. And we never really fully solved the issues about valuation and liquidity. I think we all agreed that when you looked at research, liquidity was probably overestimated. So in other words, you have a dry tax charge every year. How is it going to be funded? And I was one of, I think I once said, oh, you know, they can just sell up, the widow can sell up the house and then somebody said, oh, but you know, you'll get a picture in the daily mail of them being deprived and made homeless. And you can sort of see the dilemma that probably faced the government on the budget measure of why they've done it in the way they've done it.
- [25:04]
So there are problems on liquidity, although I think those are probably overestimated. I think the liquidity problem mainly affects people like farmers, who do have a very low income and quite a high asset base. I think the valuation was an issue because as soon as you get behind with the valuations, you're dead in the water, because you've got to value it. The next year you could get round that to some degree by having valuations only every five years. But then what happens if your wealth goes down? And one of the problems about having a high threshold is that the richer you are, the more difficult your assets tend to be to value, so the wealthier you are, more of your wealth is likely to be tied up in businesses. And those are often private businesses, quite hard to value. And that. I think we never fully solve that problem of how we do it. Other countries like Switzerland and Norway do operate some sort of valuation issue, but it's not straightforward and it's probably not entirely realistic. It's a formula rather than actually what a business is worth.
- [26:07]
D
I think I'll just add to that. The issue that you have to manage is really with the volume of valuations. So I think sometimes this is presented as though there are no other parts of the tax system in which you need to do valuations without a market transaction. But you can go through our current tax legislation in the UK and there are actually quite a lot of occasions, and one which we'll now have a lot more of as a result of last year's budget, is the removal of 100% business property relief for inheritance tax means that there will be private businesses that have to be valued for that purpose. But it was already the case in various areas of capital gains tax and other places that you have to do these valuations. It's just that if you're doing a wealth tax and you're doing it every year and you have. If you have a lower threshold, you are really having just to do a lot more of those valuations. And there then becomes a trade off between sort of how well you can afford to do the valuations without the administrative costs getting out of hand. But on the other hand, that's what's led some countries that have a wealth tax to adopt sort of shortcut formulas for valuation. And we were quite strong in the report in saying, really, that's the road to ruin, actually, because if you're not. If you're not at least doing your best at an open market valuation, there become all these opportunities to gain the system and that's at which. That's the point at which in other countries wealth taxes have tended to unravel and you know, you've had to carve out certain assets from the tax altogether. So, yeah, I think it's more a problem of how do you do this at the scale that you want to do it, rather than conceptually. This is something brand new.
- [27:54]
A
Yeah. And you could if the higher the threshold, the fewer the valuations you need to do. It's just that they're slightly more problematic valuations. I mean, I think on the threshold. I know economists are generally quite keen on high thresholds for wealth taxes. I understand why it's much easier administratively and that's sort of the approach the US do on estate duty.
- [28:14]
C
I think it's both the kind of volume issue of how many people are trying to value. It's also the principles issue that you are trying to balance the effects of these things. There are sort of potentially deleterious effects. If you're doing it for people where most of their savings decisions are driven by these sort of life cycle smoothing, they're weaker when there are these other effects where you might actually want to be pushing in the other direction.
- [28:34]
A
But you are more prone to by some way on an annual wealth tax, not on a one off necessarily, but on an annual wealth tax to avoidance. Because as soon as you have a high threshold you are encouraging people to fragment their wealth and give it away. And Switzerland, one of the reasons it is quite a successful wealth tax is that it is such a low threshold and very, very low rates, but it is a cantonally based system and they don't have an inheritance tax. So it's a much simpler thing. We've talked about that a lot and we never, you know, the design issues can't be overestimate on avoidance.
- [29:10]
B
Let me come to the direction of travel. I'll ask you, Andy, you look at the debates in the last five years.
- [29:19]
Do you think things are drifting in the direction of what you were recommending? Roughly the same as it was five years ago. How do you see it? I know from where I sit. I look across the English Channel. There's a group of French economists in particular who've been pushing wealth taxation for some time. I don't know with what success. But how do you see the direction of travel?
- [29:41]
D
I think in some respects we're closer and in others further away. So I think if you think about the sort of general case for taxing wealth more relative to work. I think that's an argument that's really become a lot more.
- [29:57]
Current in policy debates over the last five years. I think that that's become more widespread as a sort of accepted direction of travel for reform of the tax system overall. That the relative.
- [30:14]
Effective, the effective tax rates on income that you get from work in particular are substantially higher than income from certain sources of wealth. And that there's a strong economic case that academic economists are pretty widely agreed upon. I mean actually this was going back to the Merlies review that the reform of the way that we tax capital income, reforming both the tax base but then increasing the rates. That was 15 years ago. And I think the consensus academically is still there. I'm actually not sure that even that is an argument that's really been won in kind of political circles because there is still quite a forceful sort of in quotes business case for having just as low rates as possible. And although we and the likes of the ifs carrying the Murley's flag say well actually you could increase headline rates if you did these other reforms to the tax base that didn't then allowed you to do that without discouraging investment, I'm not sure that that argument actually has been sort of won politically. I guess thinking about a wealth tax specifically.
- [31:32]
Again, I think maybe we're a bit closer in terms of political pressure, but I think no closer at all in terms of sort of technocratic capability and acceptance. So there's certainly a lot more I think I see in the news and it's not just because I'm now more attuned to it sort of news stories about wealth taxes and obviously, for example, the Green Party have adopted that as a part of their policy platform. So in that sense I think it's something that's talked about a lot more. I think though sort of inside the Treasury. I'm not sure anything has changed in the last five years and I suspect that's not because views have been formed either for or against, but just because that work hasn't really happened because there haven't been governments that have sort of, you know, ministers that have expressed interest in it. So you might get the impression from reading the newspapers that we're closer to a wealth tax than than we were five years ago. I think in terms of, you know, the, as I say, the delivery of that institution, I'm not sure much has changed in the last five years.
- [32:45]
B
And Emma, if you looked at the recent budget, this headline item that might leap out was the so called mansion tax. Is that a step in the direction towards a wealth tax or just a sort of bit of window dressing? It's only going to raise 400 million.
- [33:00]
D
For all of that.
- [33:01]
B
I mean, it's not all that's going.
- [33:02]
A
To happen tax because it doesn't take into account debt. I mean, one of the things about a wealth tax is it takes into account your liabilities and so you're taxed on your net wealth. This doesn't do that. It is a sort of form of poll tax or council tax. I mean it is a form of tax on certain types of wealth. Again, not necessarily what we wanted, which was to have a comprehensive approach if you were going to do that. I guess the bands are very narrow and the other curious thing is it's got a cap, quite a low value. So what is it? Seven, seven and a half thousand?
- [33:42]
B
Yeah, five million.
- [33:43]
D
All properties above.
- [33:45]
A
So, you know, I mean, ATED sort of operates in a similar way but at much higher levels. That's a tax if you own a house that you occupy through a company there, you know, it's over 250,000. If you own a house of 20 million or plus. So that is a very much higher cap. Whilst this is really a low cap, presumably to avoid everybody complaining too hard about it. So that's one area that they've certainly got. It's slightly depressing in a way that there's not a sort of greater willingness to look at capital taxes generally. And I think it's just because it's very difficult. Other countries don't have easy solutions to this either and in a way you don't want to change something and raise less money.
- [34:32]
It's easier to reform those sorts of taxes when you've got a bit more money to play with. I think that is also one reason why people are quite conservative about having major reform on something like inheritance tax.
- [34:44]
B
Yeah. And I'm going to get you to speculate. Looking ahead now and thinking about what next. By the way, just to comment on what you said, Emma, which sort of comes before Aaron's question, as long as I remember, there were estimates about 106,000 properties in the UK that will pay the highest rate. Seems like if you're terrified of a group.
- [35:07]
Raising a stink and 100,000 people is enough to raise a stink, it seems.
- [35:12]
Curious. It's a curious observation. Yeah, exactly. It's a curious observation anyway. But more generally on the politics of this.
- [35:22]
How do you see.
- [35:25]
What is it in the political system if it's going to be a relatively small number of people paying a large amount of money. That argument does not seem to gain political traction. Do you have any insight into that? I know you're not a political scientist, but I'd love to know what you have to say about why you think the politics doesn't look very favorable.
- [35:45]
C
I think the last couple of budgets have shown us some of the reasons why things f act for small groups can be quite unpopular. I mean, one is you can end up with a very sympathetic group. And that's clearly true with the farmers. I mean, there are genuine concerns there. But farmers are something we can all understand, we can all see. And so even though it's a relatively small group of people who are affected each year then parading down the streets and with tractors and things are fairly obvious, that's clearly not going to be the case for the multimillionaires. I think the concern with the multimillionaires is the sort of two pronged approach that will be taken, one side of which is the media strategy that they would presumably have. And you can see some of that with what's happened with the reforms of the non dom regime over the last year and a half, where they basically put up a lobby group to go out in the media saying, oh, this is going to be terribly bad for business and means UK PLC has just shut to externals and so on. And they don't point out the fact that the nondom regime was specifically a regime designed to give you a tax break as long as you promise to invest in any country other than Britain. Invest in Britain, you got no tax break before, you continue to get no tax break. But they had a front group called Investors for Britain and they went out and said, oh, we're investors for Britain, that sounds really good and it's not very obvious to anybody else. And so that kind of lobbying can be very effective externally to the media. And then, you know, behind the scenes they presumably have conversations with treasury officials and with ministers and there, I guess the argument will be the same one but you know, put differently, which is, you know, it's a, it's very important for you that we are saying nice things, that we will come out and say we're going to invest. And I mean, again, I'm not a political scientist, so I don't know about what the direct politics of these things are, but there was some reporting on that just last week ahead of the budget where there was some rumblings about whether there'd be a tax on Banks. It was announced that there wouldn't be a tax on banks. And it was also leaked that the treasury had basically asked the banks to come out and say nice things about the budget straight afterwards. And they did immediately afterwards say about how much more they were going to go and invest in the UK economy. So in exchange for not having been taxed, so there's a sense in which you can think, oh, very nice economy you've got there. It'd be a shame if something bad happened to it. And so that's kind of the argument, presumably some of the wealthy will make.
- [37:50]
B
We're getting a little bit to the end of this part of the Q and A, so I want you to all start thinking about the questions you want to ask the panel in a moment, but I'll come to Andy and ask whether you think, therefore the argument for a wealth tax is sort of stagnated and. And we're not really. That's not really being progressed. Maybe after tonight's panel you'll kickstart it all again. But is that your assessment, that it's a rather stagnant debate now?
- [38:15]
D
I think, I mean, we're not really at a stalemate because there is so much genuine uncertainty in this area that remains to be resolved. I think if the evidence were really clear and everyone had dug in their trenches, then we would think, okay, there's just people taking different ideological positions here. You know, that's never going to change unless the sort of politics shifts people radically one way or the other. But I don't think, I don't get the feeling that that is how things are going with the wealth tax. I think there are a lot of areas that we pointed out in the report where we genuinely couldn't be confident about, for example, the migration response to wealth taxes at different levels, or going back to Aaron's point earlier, you know, the savings and investment responses not across a broad swath of the population, but about this population that we were thinking of, say, with wealth above 10 million. There really isn't great evidence on that. Maybe it's just with my academic pat on, I would say this, but I think there is an opportunity for research to actually shift the needle in this area where there's just so much kind of noise and so little robust underlying evidence. And I think outside the uk, actually, the international evidence base has progressed quite a lot in the last five years. I mean, if you, you know, and obviously politicians are not doing this and campaigners are typically not doing this, but if you just look at the pages of academic journals. There's a lot more work going on and in relation to taxes on high wealth individuals than there was when we were writing the report. I think if we went to do an update of this report, we would have quite a lot of extra references to put in from the last five years. And that work is gathering pace partly because there's a lot more data that's available on this group and it's become a more sort of prominent topic within academic research. So that actually makes me feel sort of optimistic about the opportunity to, to get out of some kind of stalemate. Because if we could answer confidently some of those sort of empirical questions that make politicians then very nervous about taking even the quite small steps towards taxing wealthy individuals more, then, you know, I don't think we'll forever be just dug into ideological trenches of this.
- [40:44]
B
Okay. And I'm going to zoom out a little bit and think about the tax system in general into which the wealth tax is, is potentially a part. When people look and say.
- [40:55]
What are the areas where taxes could be reformed? There are many aspects of that and obviously your proposal is for a wealth tax, but I'm going to ask you all to give us a one sentence answer on this. If you could do one thing to the UK tax system.
- [41:14]
Recommend one thing that would be implemented, would it be a wealth tax or do you think there are just other bigger fish to fry than a wealth tax? Aaron, I'll go across just.
- [41:26]
C
It depends what you want to achieve. If I could do just one thing, I would start by fixing capital gains tax. It would raise a lot of revenue and it would be better for growth and it would be largely from wealth as well.
- [41:37]
D
I think if we're looking at this group right at the very top, we need to take international dimension of tax policy seriously. And I think a lot of those rules haven't been reformed for many, many decades. And that is an area that be really important.
- [41:54]
Going forward.
- [41:56]
A
I would look at inheritance tax, but you probably won't end up with inheritance tax. You'd end up with a different tax and that would take quite a lot of energy and political commitment.
- [42:06]
B
Great. Well, thank you very much. Terrific.
- [42:11]
Insights from the panel there. But that's your time, your chance to grill them. I'm going to take the questions in batch of three. I'm going to start on the lower level. I will come to you at the top level. So we have 1, 2, 3. So let's start with Mohsen there in the blue sweater. Then I'm going to come to the person I'll indicate. Okay, thank you. Just briefly say who you are to introduce yourself to us and then brief questions only, please.
- [42:38]
A
Hi, I'm Kavya. I'm a master's student at lse. So you mentioned a number of challenges with wealth tax, especially around setting thresholds.
- [42:50]
Which, and like how these can be evaded. And you mentioned how like a catch all wealth tax ends up capturing people that you're not necessarily interested in capturing with a wealth tax, like farmers and whatnot. Like, is there a way to like, like instead or, or are there other like policies that have the function of taxing the wealthy without necessarily being a catch all universal wealth tax? Like I think you mentioned capital gains or things like vacant homes taxes which were very successful in my hometown of Toronto. Or like, yeah, something like a landlord tax. Or there's something else. Yeah, Passive income, luxury goods. Are there ways to have many taxes, if you will, that serve the same purpose without necessarily having the same pitfalls of a general wealth tax? Or would they fall privy to the same pitfalls?
- [43:43]
B
Okay, thank you. So coming over there, the pink shed there. Yeah. Hello.
- [43:49]
D
Thanks very much indeed for what you said so far. I really enjoyed it.
- [43:52]
B
Love it.
- [43:53]
D
Thank you very much. You didn't mention stamp duty at any point. I'd be interested in your views on that. Also, I know one billionaire very well and I know.
- [44:05]
It'S not me and I know that he is very keen to pay more tax.
- [44:13]
And indeed he's, I think he's the largest individual taxpayer in the uk. I wonder how much you've looked at more of the voluntary taxation from the super wealthy.
- [44:29]
Also I was wondering, would you be including organizations in a wealth tax? So for example, the LSE is very wealthy tax it.
- [44:41]
Although not as wealthy as Imperial.
- [44:45]
And then my final point, my final point is really, it's all very well yourselves and government looking at tax, but I think one of the biggest problems with tax is that government are generally rubbish at spending it.
- [45:04]
B
Okay, then there was somebody. There was somebody there. There we are over there. Yeah, yeah, yeah, yeah.
- [45:14]
Okay. Quite pleased. We got another question and then we'll go back to the panel. Thank you.
- [45:20]
C
Well, thank you very much.
- [45:21]
A
I'm a master's student of environmental economics and climate change and I have a question. Well, many billionaires don't really have income that can be taxable, but they have a lot of stocks on which they acquire debt and they use that debt to buy other things. And well, debt is not taxable, as you mentioned. So what could be an option to actually tax people based on, let's say, the collateral stocks that they're using on that debt. Like could that. I mean, where are the options that we have, knowing that this is a phenomenon that happens. Thank you.
- [45:59]
B
Okay, thank you. So some great questions there. Who would like to take which question? So I'm going to start. Absolutely, Emma. And then go this way and then next time I'll come the other way. Okay.
- [46:09]
A
Well, I certainly think government expenditure and people's criticisms of it is a bit of a deterrent on any wealth tax. You couldn't really introduce the one off wealth tax on the basis you want to pay for government expenditure. It wouldn't be very credible. And I do think there is quite a lot of resistance on that. Taxing organizations, if I remember all the questions. I mean, we tax individuals who own shares in companies. So that was the approach we took. There are countries that do have some form of wealth tax on corporates instead of individuals. It's just, it's a different. It's quite a different way of dealing with it. And it's probably.
- [46:46]
Too. It's probably not the way you'd want to go if you wanted a comprehensive wealth tax, voluntary taxation on the super wealthy. Well, I'm quite skeptical about how willing in practice billionaires are to pay tax. I think they will pay more tax, but I think they want certainty. And there's a sort of. I mean, I think a lot of very wealthy people look at tax just as a cost. And what's the price? What's the price of me living here? And if you can price that in with some certainty, that is a good thing to do. And related to that is not just how much tax you pay, but the complexity of the system. I mean, we do have a very complex and difficult system and one that particularly affects wealthy people running international businesses. And I think those are the sorts of things that put people off. So if you could improve the system in that way.
- [47:44]
You could get more from the wealthy, I think, and they would be happier to pay it. I always notice when clients go abroad, they often do pay more tax, but it's usually a simpler system.
- [47:57]
So I'm slightly skeptical about how much the super wealthy are just going to volunteer to pay taxation as a lot of the very wealthiest people pay tax and then claim, give it away to a charity and claim tax relief that way. And that is a form of power if you can give to a charity that you control, for example. So forgive me if I have some skepticism about that.
- [48:21]
D
Yeah, I think one of the first question was about other ways of taxing the wealthy. So certainly if you think about there are individuals who are wealthy, what are the kinds of tax that we have already? So we've got taxes on their returns on wealth. So the income and the capital gains that they receive from their wealth is one. So we could look at reforming those taxes. There's also transfers on wealth, so actually not stamp duty where you're paying market value for something, but a gratuitous transfer, a gift. So basically our inheritance tax functions as a tax on gratuitous transfers of wealth. But I think this is where sometimes popular perceptions don't quite match up with what we know from the data. If you're thinking about taxing really, really wealthy individuals, then you have to understand that and face up to the fact that most of that wealth is business wealth. And I think that's probably something to sort of note from the most recent budget on the mansion tax. It's quite a totemic policy. And you can understand why a government that wants to convey the message that they're requiring more tax from the wealthy would alight on that. Because everyone can sort of hold in their head the sort of mansion or the penthouse in London and think, yeah, that's what wealth looks like. But actually if you look at just the composition of the wealth of the really super rich, forget the fact that the mansion tax is capped at 7,500, even if it went all the way up, it's just not. Property is just not a very large share of really rich individuals total wealth. And so I think sometimes there's a bit of a mismatch. If you're, if you're on the search for how to tax the wealthy more, you do have to face up essentially to the fact that most of that wealth is business wealth. So whether you're thinking about taxing returns or transfers or anything else, if you're not capturing business wealth, not capturing the.
- [50:26]
A
Super rich, basically you could do something about taxing business wealth. We probably disagree on how. Could have a cap, you could say it goes in bands. There are all sorts of ways you could solve the valuation problem.
- [50:42]
D
Just picking up the last question about debt. So that's a good example actually where our current tax system creates problems. So there's this quite well known strategy, it's a sort of catchphrase in the us but it does also apply in the UK of buy, borrow, die. And so this is a strategy where you can accumulate.
- [51:06]
Wealth that is in various difficult to tax forms, but then take out debt against that and use that to fund your lifestyle. Now you know the what the reason why that strategy works or why it's sort of problematic from a tax design perspective is very largely because we don't tax the capital gains that have accrued during someone's life at the point at which they die. Those effectively get wiped out altogether. So you can harvest losses during your lifetime. You can rely on debt. That sort of doesn't work in a whole system approach, but it does work very well in a system where if you get to the end of your life and you haven't sold the assets that have actually made a gain, then that all gets wiped out. So it's a sort of counterintuitive or difficult tax design point that's not obvious to people. But sometimes we have to go into the structure of these existing taxes on wealth. As Aaron said, his top. And I think my top choice for reforming our current tax system would be reforming capital gains tax.
- [52:19]
But yeah, you have to look at how those taxes interact because you can't.
- [52:23]
A
Do that for ihd. You can't borrow and reduce your tax on business property. So you're talking about capital.
- [52:30]
D
Yeah, talking about capital gains tax.
- [52:34]
B
Unless you're earning. To ask a question, I'll come to you first in the next round. So I'll take three from the online audience and then people in the top row, get your questions ready because I'll come to you next. Three very good questions, actually. The first on how AI could be helpful in.
- [52:53]
Wealth valuation.
- [52:57]
Do you think there's any chance that that could help to solve some of the administrative problems? Secondly, when you look around the world and you say, here's a kind of paragon. This is a country that's doing it the way you like it. Which country would you pick?
- [53:11]
D
And.
- [53:12]
B
And what is it about that that makes you attracted to it? And then finally, taxing land.
- [53:22]
That'S a very old one. Goes back to Henry George in the 19th century that we should be relying heavily on land taxation as a kind of key immovable asset. Do you think taxing land is the way to go?
- [53:39]
So, Aaron, I'll start with you this time.
- [53:40]
C
Great. So on the sort of last question, the georgist land taxation type question. Yeah. There's a very sort of regular encounter, people who've very much embodied this idea that land doesn't move, so you can tax the land, the land won't go anywhere. And so in that sense, it's a very efficient form of taxation. It's efficient because there's not really Any behavior, barring the Netherlands, where you actually go, and Dubai, I guess, where you go out and build some more land, you're not really worried about the supply of land as a problem. It is what it is, and so it's efficient to tax it. That argument's certainly true. There's nothing to disagree with on that point. I think the key thing to understand if you're thinking about this in the context of taxing wealth, and again, you don't have to want to tax wealth, but lots of people who talk about wealth taxation, probably some of you in this room are interested in wealth inequality and are thinking out, how do we think about taxes on wealthy people in some sense. If that is how you've come to this question, then a tax on land is not the tax for you. Because a tax on land is such a small part of what wealth for wealthy people is, that it's just not going to be a meaningful way to tax wealthy people. Not least because in a world in which you tax land but not other forms of wealth sort of equally, they will have less incentive to hold land as part of their portfolio. They'll hold more of the other kinds of assets. So there really are concerns about how well that kind of tax would work. If your concern is wealth inequality, if your concern is purely, I want to raise some money, I want to do efficiently, then, you know, land tax tax for you. I'll pick up also just on the AI wealth valuation point. So, I mean, we've touched a lot on valuation. I think it's fair to say that we spent more time talking about valuation than any other thing at the wealth Tax Commission. It was absolutely the hardest problem anyone who's serious about wealth tax has to solve. As Andy said already, it's not like we don't do valuation within the tax system and outside the tax system. You know, people get divorced and when they get divorced, there are some settlements made between members of a couple where one of them has been working in a business, one has been staying at home looking after the kids. They're going to have to split the value. The judge is going to say, we're going to have some split and they have to work out what the value of the asset is that's being split. So we do valuation inside tax, we do valuation for non tax purposes. We can do valuation. People sell companies, right, and they sell them for values. So we can do valuations. AI in that sense can contribute to giving us a starting point. I suppose it gets a way of chucking in a whole load of numbers and getting it to give you something. I'm not sure that if I had a business I would want to use the AI valuation on it as my final point of negotiation. But if you want it as a sort of starting point to help you think about digesting lots of data points, it is one way to do that. I think that you would still end up with inevitably lots of judgment calls going in there and lots of discussions. If you're thinking about, however, going back to the earlier discussion we had and linking to land council tax and wanting to affix council tax valuations, then many of you will have used rightmov or Zoopla, which really has a value for the property you live in. For most properties that's pretty good. It won't be great at the top end, the average property. It's a pretty good way of doing it. AI would just be a slightly. It's just a flashy name for something that could be a bit faster than a standard. More could incorporate data in a different way to the way standards machine learning would do. And in that context you might get a bit further down the line of being able to get new valuations for council tax, which would certainly be a good thing because Those valuations are 34 years out of date.
- [56:56]
B
Now, Andy or Emma, who would like to take the question on the country that you think does it?
- [57:01]
D
Well, from your perspective.
- [57:04]
I provoke Emma with some suggestions. I think depends which tax you're talking about. So here's my quick three so for capital gains tax, Canada for inheritance tax or taxes on transfers, Ireland for a wealth tax, Norway. I'm not commenting in any of those cases on the rate, but just in the sort of structural design of the taxes in each of those countries. And also not saying any of those work perfectly. But that's the thing about international comparisons. You don't have to take one off the shelf and say we're going to be this country. You can learn from a range of countries what they do well and what they do badly in each context and try and take some of the good bits without replicating the bad bits. So that's how I would approach it.
- [57:56]
B
Emma, do you agree?
- [57:58]
A
No, obviously not. I mean, Canada and Norway don't have inheritance tax, so in a sense both their wealth tax and their capital gains tax. Canada has an exit tax and a rebasing, which is what you like.
- [58:11]
They are sort of doing. They're also doing a job of inheritance tax in those situations. Ireland doesn't have inheritance tax, it has capital acquisitions tax, which is a sort of tax instead of on the estate, the person who inherits pays it. And so the more you inherit, the higher the rate. Now there are actually some, you know, it's quite a good argument to say that the more you inherit, the higher the rate you should pay. It doesn't raise any more money. I think it raises less money than the UK in percentage terms on the wealth. But it's quite a complicated tax. It would. Ours would not. If we adopted that model which actually Thatcher was very keen on before the civil servants put it off.
- [58:53]
B
It was in the media review as well.
- [58:55]
A
Yeah, it was and it's certainly worth looking at. The problem is that, I mean, is it, I think what I imagine politicians will say is is it going to raise us any more money?
- [59:07]
And if it's not, why would we do it? So there'd sort of be a short term argument. I do think there is an argument for capital acquisitions tax, not the Saw island slot because it's far too complicated. And it's got this very peculiar provision that if you leave money, if you leave your assets to a distant relative, they have to pay a higher rate of tax. Well, I'm not quite sure why we have that.
- [59:30]
Norway wealth tax.
- [59:33]
It has its problems and it's obviously quite unpopular there and people say it deters business. It's not massively comprehensive base. Actually I still think Switzerland, if you look at all the things that they do, still raises.
- [59:47]
Still not a bad system. And I'm struck by how wealthy people who go to Switzerland do pay quite a lot of tax, whether they're on this sort of lump sum forfeit or they're just within wealth tax and they accept it. But it is a very different country from the uk. It's cantonly based, you know, it's easier probably to get more buy in. So I think it's always dangerous to take these little bits and pieces from different countries. You can learn from them but there isn't a panacea. It's just hard work of working it out for us, I think.
- [60:18]
B
Okay, I'm going to go to the upper deck at this point. Okay, so let me go start at the back there because I'll be easy to access and then we'll kind of come around. Take three questions. Yeah.
- [60:30]
A
Hi, my name is Ellie Lloyd, I used to work in the treasury so.
- [60:33]
B
Not sure you're being mic'd up. So.
- [60:35]
D
Hello.
- [60:36]
B
Yeah, talk right into the mic. Thank you.
- [60:38]
A
Hi, my name is Ellie Lloyd, I used to work in the Treasury. So interested to talk about Tax policy. The question I wanted to ask in terms of the rationale for a wealth tax and the moment at which to do it, I feel like possibly the pandemic people seem to not want to talk about COVID or the fact that it was this kind of once in a generation event. And I wondered if maybe you had thought about the mass kind of transfer of wealth from baby boomers to their families. We've talked a little bit about the criticisms around the inheritance tax, but that is a kind of another moment that feels quite unique. That could be an opportunity to think about.
- [61:13]
B
Luke. I'll come down here.
- [61:16]
D
Hello, I'm Andrew Loan. I work at a law firm called Boodle Hatfield. The question I have, I suppose is how much money are we going to raise from the wealthy by imposing a wealth tax?
- [61:26]
The best taxes are taxes paid by other people. And so obviously the wealthy is a group we can identify as people with resources who can pay lots of taxes. And that's probably not us.
- [61:37]
But inheritance tax is about 8 billion. Capital gains tax is about 18 billion. The total tax revenue of the UK and total public spending is around a trillion. So these are actually small taxes. Do we really think we can get a meaningful amount of money from a wealth tax or reform of the other capital taxes? And I suppose in that vein, what is the purpose? Why are we doing it? Is it to raise revenue or is it to try and get some sort of equality? And imposing an annual 1% charge on the wealth of wealthy people is not really going to get us very far on the road to equality. I would suggest because they've got 99%, then they get some returns, they get another 1%, and on we go and they've still got the wealth.
- [62:23]
B
Hello, my name is Max.
- [62:24]
C
I'm an Atlantic fellow at the International Inequalities Institute.
- [62:28]
D
Wonderful conversation.
- [62:30]
C
Thank you.
- [62:30]
D
My question is around the moments.
- [62:32]
C
What are the moments that we've seen historically where wealth taxes have been implemented? Is there certain coalitions? Are there certain conditions?
- [62:39]
D
And then is there moments? What are the moments where wealth taxes.
- [62:43]
C
Or similar taxes are dissolved or done away with? What are the moments in kind of coalitions that.
- [62:49]
D
That those occur? Thank you.
- [62:51]
B
Okay, so who would like to take which question.
- [62:57]
D
On revenue? So I think.
- [63:02]
The answer is both more revenue than some people think from reforming taxes on wealth. So not from a wealth tax specifically, but not enough to pay forever all the nice things that everyone wants. So both of those, you know, in that sense, that answer is going to disappoint.
- [63:21]
Two groups. I mean, for example, the work that we did looking at reforms to capital gains tax, which means thoroughgoing structural reform, not just putting the rate up, which actually I think wouldn't work at all from where we are now, if that's all you did. But proper thoroughgoing reform could raise over £10 billion a year. And that, you know, you can think about that in the context of the budget that we've just had. There are choices that the Chancellor could have made.
- [63:56]
Looking at those reforms. But equally, you can look at it another way, which is, you know, 10 billion pounds is still about 5% of our NHS budget, something like that. And so it's clearly not going to pay for everything we want. But there I think the case is slightly different, which is that if you want to.
- [64:22]
Change the shape of the state overall, and we're not saying one way or the other that we should have a larger or smaller state raise more tax revenue or less tax revenue overall, but if you do want to substantially raise tax revenue, my own feeling is that it's unlikely to be politically feasible to do that in a climate where people can look up and say, actually wealthy people are paying lower effective tax rates than I am. And so there's kind of a political reason why you might think it's essential.
- [64:55]
To do those kinds of reforms beyond the revenue that you raise directly from doing it.
- [65:01]
A
I suppose I'd say if you were going to do any of these reforms, probably do need political consensus. And that seems to be very difficult to get, as we've seen, because if you. I mean, one of the problems of capital transfer tax, which was a genuinely radical rewriting of estate duty, which was introduced by Labour in 1974, and it was very quickly got on the statute books, is everybody knew that if they waited long enough they wouldn't make a lifetime gift and be taxed on it, because the Tories were getting. And then they'd abolish it. And that's exactly what happened. And I think that is a really practical problem, that it's no good raising rates and having a great exit tax and all these things, unless you can get all the parties to sign up to that. And that seems to be quite difficult. So I do think that is a sort of practical problem. The moments of history, I think is interesting. I mean, Iceland and Ireland introduced a one off tax after the financial crisis.
- [65:59]
Iceland, I think, was a more comprehensive tax. Ireland was just on private pensions. Both of them actually raised more money than expected. Iceland did have an advantage that it had had a wealth tax until relatively recently. So they had the sort of machinery in place to quite quickly do valuations for a one off tax. I think Aaron mentioned that.
- [66:24]
We had one off taxes after the war. So Japan, Germany, France, Italy all introduced one off wealth taxes after the Second World War. They really varied quite a lot and quite a lot in success.
- [66:40]
And Sweden and Germany and Austria all had wealth taxes which eventually got abolished. And in fact Austria and Sweden ended up abolishing their inheritance tax. And I think the impetus behind that, when you read the literature at the time, and I think some of it is on the Wealth Tax Commission website, is quite clearly that what had happened was that because of problems on valuation, powerful lobby groups, the very wealthy was simply not paying wealth tax or inheritance tax. So there's quite an interesting paper on Sweden where in the end the only people paying it the wealth tax. And I think the same was true in Austria where people with bank accounts and houses and businesses didn't pay any. And that was broadly, I think the problem with the French wealth tax, which is why in the end Macron just said, okay, let's just have it on houses. So what usually causes the breakdown of these taxes is the fear of flight, people leaving. Although I'm not convinced actually the wealth tax was a big incentive for people to leave from Sweden. I think there were other factors going on, but the fact that there was a sense of unfairness and then it just became politically unsustainable. So again, it's sort of like a political consensus. The politics of this really do matter.
- [68:01]
C
I get Ellie's question. Yeah. Which I think links very nicely to Max's question that Emil just answered. So the question of what makes it possible to implement a wealth tax ties in quite nicely to. Is this the right moment in the context of the great wealth transfer? I think if you're concerned about this great wealth transfer, this idea, there's a generation of baby boomers who are now getting older, have in some cases, generationally, they're lucky not in the sense that all of them got wealth, but in the sense that that's a generation where many people got wealth, many also didn't. But those who did, from relatively small amounts of initial savings, wealth grew quite a lot. So house prices, for example, were about three times annual income 40 years ago. They're more than seven times seven and a half times 20 years ago. In fact, it was even lower than that before. But 20 years, 30, 1997, there were three and a half times. And in last year they were 7.7 times annual income. And so that growth in House prices, growth in asset prices means that if you own some assets then you now have a lot of wealth and you're passing that on. I don't think if that is your concern, I think it's a very legitimate concern to have. It has a huge impact on equality of opportunity. But if that's your concern, I don't think a wealth tax is your solution. Then your question is around the transfers of these assets. And actually that's where inheritance tax currently is really failing us. Inheritance tax is a tax on things transferred at death and transferred for anti avoidance purposes in the seven years in the run up to death. But actually people in their 50s and 60s make transfers to their kids in their 20s and 30s. Long before those people in their 50s and 60s are concerned about their own debts. They're making transfers because their kids are thinking about getting on the housing ladder. And if you go to the bank of mum and dad and they have some money, they can help you get on. And if they don't, you can't. And given how much harder it is to get on that ladder because it takes many more years of savings to be able to build up the deposits you need, it is much harder. So I think what you're talking about in that context is actually transfer is taxes on transfers. So something closer to the capital transfer tax than they had before or capital acquisitions tax. That's the direction you would need to go in if that was what the concern would be.
- [70:02]
B
And I've used the chair slightly with a comment rather than the question, but I think a lot of people would have come along here this evening because they thought, well, we're going to learn about how to reduce wealth inequality. And I think what we're largely hearing is that actually.
- [70:17]
The tax proposals that people are talking about are going to have a best of marginal effect on overall wealth inequality. And I think if you look in history at changes in wealth inequality, they've normally come from things entirely outside the tax system. So a good example is the British aristocracy in the late 19th century lost a lot of wealth because of the first globalization, which lowered agricultural land prices, which had nothing to do with tax policy. It entirely had trade policy. So I think one of the frustrations that people have is that actually if people are worried about the inequalities in wealth, they're going to learn very quickly that actually the tax solutions are not actually that important in the grand scheme of things. But we'll pick that up maybe towards the end. Okay, I'm going to come downstairs again and do Three quick questions down here. Okay, so this one here, the person in the right, I'm going to say stripey jumper. Is that all right? You're allowed to have a stripy jumper. Okay, can we just pass that along to.
- [71:21]
That person there? There we go. It's coming over your shoulder. There we are.
- [71:26]
A
Oh, yeah, yeah.
- [71:27]
B
Oh, here, we've got you.
- [71:29]
A
My name is Lakshita and I'm a master's in economics students at lse. And some time ago I was actually attending another event on the wealth tax and they were talking more from a sociological perspective. So I asked them about the migration issue and they said that there had been studies in sociology that had established that rich people are actually quite vain and attached to their lifestyles, so they're very unlikely to move as long as they can help it. So they said that it's not that big of a problem. But even if it is, then what do you think about, like, international cooperation to sort of implement a uniform wealth tax or something like, what do you think about that?
- [72:09]
B
Okay, just go. Let's go. Just one behind, just to be economical. There we go.
- [72:16]
C
Hello, my name is Michael and I'm in year 12. I study maths for.
- [72:19]
B
Hold the mic slightly closer.
- [72:21]
C
My name is Michael and I'm in year 12. I study maths, further maths and economics. And my question is. With the recent election of Zoran Mamdani in New York, most of his campaign was run on taxing the 1% in New York, and the 1% make up around 40% of the budget for the state. If Zoran Mandami was here, how would you advise him to implement that tax? And.
- [72:49]
Would it impact billionaires staying, leaving, maybe moving to other states, other countries? And how could that be prevented?
- [72:57]
B
Okay, then I come out of it there. So let's go over there. That's right. Put the hand up at the back row. That's. That's right. Okay.
- [73:07]
D
Hi, William.
- [73:09]
B
Hold it close, please. Hello.
- [73:12]
D
I'm a sixth form student studying economics. Are the issues in our society, such as growing public debt, not large enough that we have an argument for taxing the evading huge conglomerates such as Amazon, as well as the wealthiest in society, as well as savings made in the welfare state. So not just one, but all three or whatever on leave.
- [73:39]
B
Okay, back to the panel. And you can also.
- [73:43]
Counter my provocative comments, should you wish.
- [73:46]
C
All right, so let me. Let me jump in on. I want to grab Jim's questions. I like that. But I will also come to. I mean, I'll take Whichever one of these, I'll take Amazon as well. Let me do Amazon first. On taxing Amazon.
- [74:01]
One thing is that's not something we looked at in a kind of bigger picture question around the taxation of Amazon and sort of big multinationals, which I guess is the broader thrust of the question that William asked. We have in the context of digital companies. We have this new, relatively new tax called the digital services tax. It's a way of essentially getting revenue from companies that aren't based here, that don't sort of produce things here in a wider sense, but make money here in the sense that they sell things to consumers in the uk. So what's the basis by which we could tax Amazon? It's not based here, but it is making a profit because it has consumers here who want to buy from it. If we didn't have consumers here, it wouldn't be able to make that money. And that's the kind of grounds that we can use that sort of taxation. So we have just implemented the digital services tax. A level of that is something that one might want to change. I think something that is really crucial though, to sort of step back from that perspective on is while you can want to tax the wealthy more and you can want to tax corporates more, you shouldn't think you're going to fund the entire welfare state or you're going to fund the £1 trillion roughly that we spend on £1.1 trillion we spend on everything through just those sorts of taxes. That just isn't a reasonable kind of thing to be possible. So you do need to think about having a wider tax system that works and also I think to fix the bits of that tax system that really don't work very well. So by fixing those taxes, you can also help wealth grow further across the economy. Which is where I was going to go into Tim's question. Some of the things that changed wealth inequality throughout the course of the last century was also the broad growth of middle class wealth. And actually only one thing we could be concerned about is the fact that rising house prices and rising asset prices relative to incomes makes it much harder for people to get into having access to wealth. So I totally agree that tax is not the only answer. And as people who spend our days thinking about tax, that's a hard thing for us to say, but that isn't to say that it isn't part of the answer. So I think you're not going to solve collectively all of the welfare inequality problems through tax, but you certainly can use tax. I think the question around the very wealthiest and can you kind of reduce the top 1% share or the top 0.1% or billionaires or whatever group it is you're interested in, particularly once you get to billionaires, is, you know, wealth for that kind of group. If it's not growing 8 or 9% a year on average, then their money managers are doing it wrong. And no one is seriously talking about wealth taxes at that. Right? Few people are talking about, well, there are a couple people, but a few people are talking about taxes at that sort of scale. If you were to have taxes at that sort of scale, you absolutely would see those people. You know, you just wouldn't be credible to put a 10% tax and not expect people to respond. When we looked at migration responses, we thought about it fragging a bit. But when we did migration responses, we're thinking about taxes of 1 or 2%. We have evidence of like what that sort of scale of tax would do. And at that level, some people respond, many people stay. You can raise revenue and do it in a sort of relatively progressive way effectively. But if you're thinking about wealth inequality more broadly, I guess a question for you is, is that sort of UK wealth inequality or global wealth inequality? Because if you want to reduce wealth inequality in the uk, you can say actually it's a good thing just to have these people not own houses here. That's actually they're bad for our economy. They're causing problems, if that is your view. And you know, there are areas of Spain, for example, the regions of Spain where they said, look, we don't want wealthy people coming here and buying up our houses. And we have a very high wealth tax because we don't want them to do it. It's not a tax designed to raise money, it's a tax designed to discourage that behavior. So you could also have that if that's what you want. But I think it does come down to what is it you're trying to achieve with the tax. Think about that first and then we can design which part of the tax you need to achieve those goals.
- [77:45]
B
Any advice for the newly elected mayor of New York?
- [77:48]
D
I'll just tie interest in that. I'll just tie together the question about Mamdani in New York and the sociology studies, because those studies I think are being referred to there are studies about US interstate migration. So US States have different levels of kind of top up taxes on top of federal level taxes. That creates disparities in rates of tax across different states in the US and it's quite a nice way to study migration impacts because you can look from the federal tax records at where people started and which state they went to and use a lot of variation across different states. And those. There's two main studies on that that find some, to some people quite surprising findings. So one is that the baseline levels of migration we talk about the richest being hypermobile. Actually they're substantially less mobile than the poorest individuals in, in the US and that's partly explained by the fact that there are things that keep them quite rooted in place because they have good kind of social and business networks that they don't want to break by moving. And there's kind of this basic point that, you know, part of the point of being rich is that you get to live where you want to live rather than where we'll offer you the lowest tax rate. So those studies tend to find that the interstate US migration in response to taxes is lower than people think. So in that respect, maybe Mandam is sort of encouraged by that. I think the difficulty is with a lot of local taxation and I don't know the details in New York City, but I expect that this applies here. Same kind of debate we have with devolved taxes to Scotland is it's really difficult to design an effective tax system with kind of one hand tied behind your back where there are a lot of elements of tax design that you don't actually control. And so the risk is that you try to make changes within the limited scope of powers that you have at a local level and that you can make things worse in that way. And that's not generally a problem that is faced to the same extent at the level of national governments. But we can think about the same kind of problem, which is that even national governments are situated in this international regime where you can't always just change all your international tax treaties in the way that you would like. So tax design is always about operating within those constraints. But at a very local kind of city mayor level, those constraints are really quite substantial and make significant tax changes quite difficult.
- [80:37]
B
Have you. For me to go back one more or you.
- [80:40]
A
Well, I suppose I was only going to say that I think that the very wealthy are. America may be slightly different for a number of reasons. I won't go into it, but the uk.
- [80:52]
There'S a lot of debate about how many people left last year and who they were. And I think we tend to sort of bunch wealthy people together, but they do comprise very different segments of the population. There'll be young wealthy people Who'll be less bothered about things like inheritance tax. Very old, wealthy people and trying to cater for all of them is not something we should be doing. But I think the very wealthy, in some ways it's a diary change for them. If they spend 90 days here instead of 140 days, which can go up to 120 days here without being UK resident after two years, it's not that difficult for them. So.
- [81:31]
I think one has to look at it in the realm for each country. I think for Mandami, I mean, New York state taxes are high, other state taxes are low. If he's worried about people leaving, I suppose he can have a throwback tax, which is.
- [81:47]
If anyone was resident in the year of the election in New York, you're still going to have to pay the tax for X number of years. So there are a number of design ways you could perhaps catch people if you wanted to. I mean, I think the US system's so leaky anyway. There are some. So many complexities, avoidance techniques, I don't mean evasion, I mean avoidance techniques, exemptions, you know, it's not that difficult to get round the system for wealthy people as long as they get good advice and they plan. So I'm not, you know, that surprised that there's not a massive migration movement because they don't have to worry about it too much. They can have all sorts of really weird and wonderful vehicles.
- [82:28]
B
Right, I'm going to take one from the online and then one from up here. You call my eye first, so you're for you. And then we'll have to wrap up.
- [82:38]
C
My name is Rob Moore. I've been an entrepreneur for 20 years, have over 100 staff, and it does feel at the moment like we don't really want to encourage growth. So as a business owner, we have to pay VAT corporation tax, we have to pay national insurance that went up, we have to contribute to pensions, we have business rates before we can even take income. And now we're talking about wealth taxes and we've just had a mansion tax. So I'm just wondering, does the panel have an idea of maybe one change in tax where it actually might encourage growth in employment?
- [83:13]
B
Okay. And then finally I'm going to take one from the online and just give a broad interpretation of what it's saying. But basically we haven't talked much about the international dimension, international corporations and some people think that to have a really effective wealth tax regime, you've got to have it so that there's some commonality across borders and the BEPS process in OECD really doesn't look like a very promising place to be starting. So I don't know if you want to comment on the international dimension. So very quickly, whoever would like to respond to our entrepreneur up there or to the international.
- [83:53]
D
Yeah, I mean, so on entrepreneurship and growth, I think what we need to break is the sort of one for one assumption that lower tax rates are pro growth and that higher tax rates are anti growth. And break it in the sense that we need to think about the design of the tax base rather than just this idea of the tax system having sliders that you put up and down. And so in the context of capital gains tax reform that I mentioned earlier, a key part of that would be to take out of the tax base altogether the costs of investment. And so as I said, just increasing tax rates results in this trade off where you genuinely would be discouraging productive investment by taxing capital gains at a higher rate. But it is possible to square that circle by designing the tax base in such a way that the costs of making the investment in the first place are taken out of tax altogether. I think the difficulty is that those kinds of reform, what we technically speaking call structural tax reforms. So you're not just moving sliders, you're not just crossing out one number in the legislation and putting a new one in. Those structural reforms actually take a lot of carefully designed and they take a very long run in for governments to deliver. And so you can't decide that you want to do those kinds of growth enhancing reforms to the tax system sort of 10 weeks out from the budget. You need to be working on those things a long way in advance because they are more difficult to design and administer. But we keep banging the drum for saying those reforms are actually worth doing. They could shift the needle on growth in a way that I think the OBR concluded the last budget didn't really do anything for growth much one way or the other. There are these opportunities if you start thinking of structural tax reform as a way of actually going for growth. But that's not just about cutting rates. It's about doing some hard yards with the design of a tax base.
- [86:04]
B
Anyway, we're fast reaching our final time to Emma, do you want a final word on either of these things?
- [86:12]
A
No, I agree. Design of the tax system is important in how you promote growth.
- [86:18]
C
And then just finally on international cooperation, I mean, certainly if you can get everyone to cooperate on the design of the tax system on sort of the international aspects like mobility, like a tax. If you wanted a wealth tax, having it worldwide, that's clearly better in the sense that it gets rid of the incentives to change location, does obviously much, much harder. I think the things that we've said already is that there is mobility. There certainly would be some mobility. If the UK were to unilaterally introduce a wealth tax, it wouldn't be as large as some people fear. It also would be more than zero, which some people think you can get. But we at the Commission said if you were, for example, to be thinking about a wealth tax of, say, 1% above 10 million pounds collectively, across all the behaviors, not just migration, but migration and other behaviors, you'd expect to lose between 7 and 17% of the revenue you think you'd get as a result of the change in way people behave. So that's certainly substantial. It also means that there's quite a lot of money you would get left over as a result of that. It doesn't mean you have to do it, but it means you could do it. International cooperation makes it easier if you can achieve it, but it's not an easy thing to get in the first place.
- [87:22]
B
So apologies to all of you who couldn't get in this evening, but there were a lot of people who quite, quite understandably had questions in response to the terrific panel discussion. So it only really remains for me to thank you all for being here, but in particular to thank our terrific panel, Aaron, Emma and Andy for their insights and I think for talking both authoritatively and interestingly about a very important top.
- [88:02]
A
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