I started out with the intention of writing just one article on this subject, but it has become three. It’s a big subject … (Here is part one and here is part two, if you are not already up to speed)
The latest polls show Labour comfortably in excess of 400 seats, maybe even 500.
They are going to have such a thumping majority (with less than 50% of the vote - how crap is first past the post), together with a Blob which, broadly speaking, is theologically aligned, that they are going to be able to do pretty much what they like. There is scope for a lot of invasive government. The socialist mindset does not respect private property. It feels entitled to it. So today I wanted to further explore wealth taxes and what Labour might do, should the socialist-leaning instincts in the party come to the fore during those first 100 days and beyond.
Wealth taxes are hard to collect
Let us start with the golden rule of taxation, something with which readers of Daylight Robbery, the definitive book on taxation, will be familiar, as articulated by Louis XIV’s minister of finance, Jean-Baptiste Colbert.
The art of taxation consists of so plucking the goose as to obtain the most possible feathers with the least possible hissing
(If you haven’t read Daylight Robbery - How Tax Shaped Our Past and Will Change Our Future, by the way, I urge you too. I think it’s the best of my books and one of the things I will go to my grave feeling proud of).
With that Colbert quote in mind, let us turn to wealth taxes. I’ve often argued that one reason we don’t see as many wealth taxes as you might expect is that, in practical terms, they are not as simple as they might seem. Income Tax works well because it is easy to collect. The employer collects it for the government - and faces harsh penalties if they don’t, so the onus is on them. Ditto VAT: only it is the seller on whom the responsibility to collect falls.
Wealth taxes, however, rely on declarations. There is much more scope for non-compliance, whether deliberate or accidental. Say the government wanted to impose a 5% net worth tax. It would have to find out about your real estate, both at home and abroad, and reach a fair valuation for that. It would have to find out about your stocks and bonds, your possessions, your vehicles, your savings, your ISAs, your pensions, your cryptocurrencies, your art, your antiques. Anyone who has ever had to value an estate for Inheritance Tax purposes knows what a headache this is. It can take many months.
The government can force banks to collect a lot of this information, and the bank can then get heavy with you, if you don’t comply (this is a route I think we will go), but there is still an awful lot of scope for non-compliance, avoidance, and evasion. Most will be truthful about what they own; but many will not - and hope that HMRC does not have the resources to investigate them properly, which it doesn’t. Many people have valuable things - from antiques to lost bitcoin wallets - that they don’t even know have value or can’t access. Note: I’m not saying a “net worth tax” won’t happen - I’d give it a 50:50 chance - just that they are not quite as easy as they sound. The goose will hiss a lot.
That said, I do think that, for sure, we will see changes to wealth reporting requirements, which is a first step in that direction.
But if not a net-worth tax, here are some wealth taxes that could quite easily be imposed:
A savings tax. Savings are relatively easy to prove and then tax. Banks are the ally of government here. There is some £1.5 trillion held in savings accounts in the UK, so there is plenty there to be tapped (though a lot of this is in ISAs, which are supposed to be tax free). Starmer has made noises about ordinary working people not having savings, so I doubt he will have too many qualms about sticking his snout in that particular trough. The complaint is that people have already paid tax on their savings when they earned the money in the first place, plus they pay taxes on the interest.
An equity and bonds holdings tax. Again, relatively easy to prove - banks and brokers to report and collect. I doubt, however, Starmer will tax gilt holdings or remove the CGT exemption on gilts: he will want that particular income tap to remain free-flowing.
Taxes on ISAs. The tax-free goalposts on ISAs can quite easily be changed, and there are a lot of people who have built up large pots, which no doubt Labour will be eying. The £20 grand annual allowance might be reduced or, more likely, there will be a maximum tax-free cap of, say, £100 grand. As to whether they can tax existing holdings, difficult but not impossible.
Tax relief on pension contributions. The sixty grand limit will probably come down and the tax-free lump sum will probably not be quite so tax-free.
An off-shore wealth tax. You have to declare any holdings you have overseas and then pay tax on them. Lots of scope for dispute and non-compliance, of course. Doesn’t mean it won’t happen.
A luxury goods tax. It’s not right that you should be able to afford luxury goods and that others can’t, so we are going to tax them, just as we do alcohol, fuel, and cigarettes.
Exit taxes. A lot of rich people are already leaving, others will follow. Labour will know this. I would not rule out some kind of exit tax, as reader AK pointed out to me. The USA, Canada, Australia, Germany, France, Spain, and Denmark all have exit taxes - in many cases, taxes on unrealised capital gains. (Imagine paying a tax on the gain, not realising it, and that gain turns to a loss. Horrible).
If you are interested in buying gold to protect yourself in these frightening times, check out my recent report. I have a feeling it is going to come in very handy.
My recommended bullion dealer is the Pure Gold Company. I also like Goldcore.
The equalisation of Capital Gains Tax and Income Tax, as mentioned in part two, looks more likely than ever. Wrong, of course. Capital gains are not something most people experience year in year out. For many, they are one-off events on the sale of a major asset or company. But such morals do not enter into it.
Similarly, Inheritance Tax is likely to go to 50%, also as mentioned in part two.
Angela Rayner has said that Labour is not planning rises to Council Tax “at the moment,” presumably with the permission of the party strategists, though Keir Starmer conspicuously did not rule rises out earlier in the week. As previously outlined, Council Tax is an obvious target because the banding - the prices at which homes are valued - is so out of date (based on 1991 valuations), but the money does not go to central government, which is what Labour would want. Local taxes also tend to create a lot of agro - Colbert’s hissing - which governments prefer to avoid. There is, in addition, the fact that Council Tax rises target the “wrong” people (council taxes tend to be higher in Labour-voting boroughs, which are often less well off, and Labour will not want to tax these people as much as they will the “capitalist classes”). One solution is to levy much higher Council Taxes on the most expensive properties. As with wealth taxes, I’m not saying Council Tax rises are not coming. They probably are, but they are not the prime target.
One final thought: thanks to VAT on school fees, there is going to be even more pressure for places at good state schools, which will mean homes in catchment areas will command an even higher premium than they do already. (Labour says it’s going to modernise the curriculum. Oh, God. Is it not modern enough already?)
Right, I think that’s your lot on Labour’s tax rises. Look out for pieces in the near future on Turkey’s inflation and the damage it has done to its people (I am actually writing today’s piece from Istanbul); on my picks from the Weird Shit Investment Conference; and I’ve got a great piece coming on wages and gold).
If you are in the Edinburgh neck of the woods this August, look out for me at the Edinburgh Fringe. I’ll be performing one of my “lectures with funny bits”. This one is all about the history of mining. As always, I shall be delivering it at Panmure House, where Adam Smith wrote Wealth of Nations. It’s at 2pm most afternoons. You can get tickets here.
Condor Gold (CNR.L/COG.TSX)
Listen to this episode with a 7-day free trial
Subscribe to The Flying Frisby to listen to this post and get 7 days of free access to the full post archives.