Why a wealth tax would be a complete disaster
Why a wealth tax would be a complete disaster
Roger BootleMon, May 11, 2026 at 5:00 AM UTC
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After last week’s disastrous election results for Labour, political pressures on economic policy-making are set to intensify, and no doubt the Government will be even less prepared to cut the welfare bill.
With upward pressures on spending on defence and the NHS, and government borrowing at just about its advisable limits, more tax revenue is needed. The trouble, of course, is that higher tax rates on ordinary households aren’t exactly a good idea.
Not only would they threaten to depress consumer spending when the economy already looks shaky, but they would also be unpopular.
So the search is on for sources of tax revenue that would not damage the economy too much, but which could also be supported by the public. That is a big ask. However, there is one leading candidate, namely a wealth tax.
The attractions of a wealth tax stem from perceptions of equity and fairness. Many people readily believe that their fellow citizens who have acquired substantial amounts of wealth have done so undeservedly, rather like lottery winners.
Moreover, even if they have done something laudable to acquire such wealth, in the wider scheme of things, they do not “need” it.
By contrast, those at the bottom of the wealth distribution do need more money. For anyone concerned about equity and social justice, a wealth tax could readily be seen as a “no-brainer”. In fact, it is anything but.
First, there are serious practical problems. Valuing wealth is a total nightmare. You might think that such things as bank deposits or even shares would be comparatively easy.
After all, in the case of the latter, there is a continuous market in them so all you have to do is fix the date of valuation and, hey presto, out pops the asset value.
But an awful lot of wealth is not like this at all. Take residential houses and flats. Their value is difficult to assess because there is no discernible market in an individual property and the prices of properties that appear to be similar can, in practice, diverge considerably.
A more serious problem, however, is the valuation of private businesses, and these assets typically feature prominently in the portfolios of very wealthy people. Again, there is effectively no ready market in the assets in question.
Another tricky issue is how to value future defined benefit pension entitlements. People might not think of these as constituting wealth – but they do.
Of course, despite these difficulties, a government determined to impose a wealth tax would simply plough on through them. But the administrative complexity and expense of doing this would be considerable.
Then we come on to the economic effects. Taxing wealth would discourage savings and investment.
There would be an incentive for people to blow a large part of what they had on consumption, rather than hanging on to it. The tax might also deter the effort to build up wealth in the first place.
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0105 Britain punishes the wealthy
The most serious downside of a wealth tax is the risk that it would drive many wealthy people to leave the country.
In the UK, in recent years, this has already become a very serious problem, without the imminent prospect of a wealth tax. With one, the exodus would turn into a rush for the exit.
The net result of all this is that a wealth tax might well not raise any money at all, and might even be a net revenue loser.
But this wouldn’t only be about tax revenues. Many of the people leaving the country would be the movers and shakers who start businesses and drive them forward. So the departure of large numbers of such people would seriously harm prospects for economic growth.
Nevertheless, there are a good many people on the Left who do not consider this to be a clinching argument.
If you believe inequality itself to be a very great evil, then a reduction in wealth inequality – even if it worsens the economy as a whole and leaves people on average worse off – could still be called “a good thing”. Yet I suspect that most people do not take this view. Rather, they think that taxing the rich, ie other people, would be a free lunch.
The international evidence suggests otherwise.
The number of developed countries that operate a wealth tax has fallen from 12 in the 1990s to four now: Switzerland, Colombia, Spain and Norway.
The last three raise comparatively little revenue from their wealth tax – between 0.1pc and 0.6pc of gross domestic product (GDP). Switzerland manages to raise about 1.2pc of GDP from its wealth tax.
It will surely seem surprising that a country like Switzerland, which is known for its low taxes, has a wealth tax. But this tax is able to function without driving away wealthy people in their droves precisely because the overall tax burden is so low, which is hardly the case in the UK.
Moreover, it is striking that there is no wealth tax in some countries that you would readily expect to have one. France is a leading example. In fact, it did introduce a wealth tax in 1982, but abandoned it in 1986. Another version was introduced in 1988 but abandoned in 2017. What remains is a tax on property wealth only.
And the darling of so many on the Left, namely Sweden, doesn’t have a wealth tax either. It introduced one in 1911 but abandoned it in 2007.
The trouble is that opinion polls suggest that a wealth tax in the UK would actually be very popular. And the Government doesn’t have that many measures potentially on the stocks that could endear it to the electorate.
In the current circumstances, and perhaps under a new leader and chancellor, could the Labour Party be bonkers enough to introduce what both France and Sweden have tried and rejected?
Roger Bootle is senior independent adviser to Capital Economics and a senior fellow at Policy Exchange. roger.bootle@capitaleconomics.com
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