Labour’s wealth tax coming won’t only hit rich but middle earners | Personal Finance | Finance
A growing band of Labour backers are demanding that Starmer and chancellor Rachel Reeves launch a punitive tax raid on the well-off. Many will find the idea appealing. They believe it won’t affect them and it probably won’t. At first.
Last year, The Trades Union Congress (TUC) called on Keir Starmer to launch a tax raid on the wealthy to fund his government’s spending plans.
This July, two of Tony Blair’s former advisers did the same: academics Patrick Diamond and Colm Murphy at Queen Mary University of London.
Now Labour’s biggest union backer, Unite, is demanding that Reeves imposes a wealth tax on the richest 1%. Unite funds Labour to the tune of £2million a year, so has bags of influence.
No prizes for guessing how union bosses want Reeves to spend the £25billion they say it will raise. On giving public sector workers a 10% wage hike. Didn’t they just get a pay rise?
Last year, I naively wrote that Starmer and Reeves wouldn’t go anywhere near a wealth tax. As the unions grow in power and confidence, they may have no choice.
The TUC plan would see wealthy individuals would pay a one-off tax of 1.7% on assets over £3million.
This would rise to 2.1% on wealth above £5million, then 3.5% on assets over £10million. The TUC claimed only 140,000 would pay.
I don’t believe them.
Anybody with passing knowledge of British tax history knows that new levies start low, to minimise resistance. Then they climb and climb.
When William Pitt the Younger introduced income tax in 1798 to pay for the Napoleonic wars, it was charged at two old pence in the pound. That’s just 2%!
Today, even low earners pay 20%. The highest earners pay 45%. Plus National insurance, which is basically income tax by another name.
Labour’s wealth tax will rise inexorably, too.
The process has already started. The TUC originally called for a single one-off tax raid. Now Unite wants it every year.
And once the thresholds have been set, they will remain frozen for years, possibly decades.
Just look at inheritance tax. The nil-rate band was set at £325,000 back in 2009. It’s been frozen ever since, dragging tens of thousands of ordinary families into the net through fiscal drag.
It’ll be the same with the wealth tax.
It will become a battleground in every Budget. Payment thresholds will fall whenever the Treasury is strapped for cash, percentage rates will rise.
The definition of who’s rich will steadily widen over time.
Now I agree with the principle that those who have more, should contribute more. The UK is getting poorer, but there’s still plenty of wealth sloshing around.
The problem is that the truly wealthy employ an army of skilled advisors to sniff out every loophole and keep their tax bills to a minimum.
They’ll be working flat out if a wealth tax is introduced. Growing numbers of better-off Brits will clear off and take their wealth with them.
Many on the left will say good riddance. Then double down on those who stay.
Ultimately, it will be middle earners who end up paying the wealth tax, just like they pay most inheritance tax. Not at first but gradually, over time.
