RUTH SUNDERLAND: Persecution of supposedly rich, whilst imagining rest of us can escape share of bill not realistic way to repair national balance sheet
- Covid-19, a virus with no respect for wealth or status, has reminded us of our common humanity
- It has also exposed deep inequalities – we may be in the same storm but in very different boats
- The financial impact of Covid has exacerbated social divides
As Mark Carney, the former Bank of England governor remarked in his recent Reith lecture, Covid-19, a virus with no respect for wealth or status, has reminded us of our common humanity.
But it has also exposed deep inequalities. We may be in the same storm but in very different boats: a few are insulated from reality on £100m yachts, while many bob along in leaky vessels. That has been hammered home as much of the country has been plunged into Tier 4 lockdowns, with dire consequences for firms and jobs.
The financial impact of Covid has exacerbated social divides. Many middle-aged, middle-class professionals who can work from home, and who were secure are so far economically unscathed, if not better off. There are £100billion of ‘accidental savings’ in people’s bank accounts, most of it concentrated among the quite well-heeled.
Haves and have-nots: We may be in the same storm but in very different boats
One of the cruelties of the lockdowns is that the worst hit have been working in hospitality, retail and entertainment – in other words, mainly the young, the female and the low-paid. They will be hammered again by Tier 4 and it is the young who will be burdened with the Covid debt – as a nation, it is more than £2trillion.
A superficially attractive but dangerous idea is taking root that ‘the rich’ can pay for it all. Some say capital gains tax rates should be hiked, even though that would deter entrepreneurs and investors when the country needs both. A raid on pensions relief is another threat. Yet tax benefits on retirement pots have already been whittled away, the rules are ridiculously complicated and the biggest problem is people saving too little, not stashing aside too much.
By far the worst proposal is a one-off wealth tax of 5 per cent on net assets including main homes and pensions above £500,000.
Everyone would have their own allowance so it would be on assets of more than £1m for a married couple, with the option of spreading the cost over a five-year period.
This has been suggested by academic researchers at Warwick University and the London School of Economics – as an aside, I wonder if they have any idea how much their own pensions are worth – and could, they say, raise up to £262billion over five years.
That would be equivalent to raising VAT by six percentage points or the basic rate of VAT by 9p over that time frame.
It is, of course, utterly bonkers. The practical objection is that assets such as homes and pensions do not make people tycoons. They may be valuable but they are also illiquid. Imposing a tax could force people who are asset rich but income poor to sell or to take out loans.
Philosophically the idea is also objectionable. A wealth levy would be retrospective, which goes against a basic principle of a fair tax regime. It would destroy faith in savings and obliterate trust in the Government.
Sometimes, ministers have had a tin ear over the less well-off, as in the debacle over school meals. But the Government has also extended billions of pounds of support from which we have all benefited and we must all play a part in repaying.
Vengeful persecution of the supposedly rich, whilst imagining the rest of us can escape a share of the bill is not a realistic way to repair the national balance sheet. Growing our way out of trouble would be the best solution but, at some point, there are almost certain to be tax rises – and not just for ‘the rich’.