Mike Dailly: We need a wealth tax to weather oncoming storm

A no-deal Brexit will see our economy dive and the price of food and essential goods rise.

That in itself would be enough to throw a tidal wave over the fortunes of most countries. 

But it’s worse than that. Leaving the European Union without a trade deal during a global pandemic is the perfect storm for economic and social chaos. It’s a storm that can sink any government and cause untold misery for its people. 

In Scotland, we know that no-deal is an act of economic sabotage and self-harm. We didn’t vote for it, but it’s happening in just over two weeks. It’s an ideological choice that makes no sense for the safety and wellbeing of the people of these islands; not least while we’re battered by Covid-19. 

The UK will leave the EU at the end of the year

While the Tories are content to sacrifice the needs of the many for the self-interests of the few, we must have guarantees from the Prime Minister and Chancellor. People cannot endure more austerity policies, nor can households afford to pay more tax when they have less income to pay for higher living costs. 

In times of great crisis, history teaches us we need great leadership and bold action.

During the Second World War we rolled out the systems of PAYE income tax and national insurance to pay for the cost of the war. In 2020/21, we are on course for a £400 billion-pound annual deficit, representing 20% of our gross domestic product. 

The pandemic has been a latter-day gold rush for many Tory-connected individuals and businesses. Around £15bn of taxpayer’s money has been spent on unprocured Covid-19 personal protective equipment (PPE). Cronies of the UK government ministers often with no PPE experience, no assets and no credibility have landed individual contracts worth hundreds of millions. Amazing fortunes have been made overnight.

The most obvious way to off-set the cost of Covid-19 and Brexit is a wealth tax. That’s the considered opinion of a powerful new “Wealth Tax Commission” (WTC) report from the London School of Economics and Warwick University.  

So far, the Chancellor has been unwilling to confirm he won’t hike personal taxation. The WTC authors explain how £250 billion could be raised over five years.  9p on the basic rate of income tax (20 to 29% in the pound) or 6p on all income tax bands would do it.

Alternatively, a 6p rise in VAT from 20 to 26% would do it. Or a 5p rise in corporation tax with a 4p rise in VAT would also generate £250bn over five years. 

Any increase in basic tax or VAT would be regressive, punitive, harmful and unaffordable for working people, those in receipt of state pensions and social security.  The WTC authors present a simple, workable and equitable solution. A one-off wealth tax payable on all individual wealth above £500,000 and charged at 1% a year for five years would raise £260bn. 

The wealth tax would be paid by individuals whose total wealth after mortgages and other debts exceeded the tax threshold, and only on the value of wealth above that threshold. For couples, the wealth tax would only kick in for wealth over £1 million. The value of shared assets – such as a jointly-owned family homes – would be split. 

This solution would provide very little pain for so much gain. The wealthiest in our society would contribute a fraction more to help the UK get its public finances back on track.  It would obviate the need for general rises in taxation or austerity policies that punish the neediest in our communities.   

The moral, ethical and political case for a wealth tax is overwhelming. We’ve seen inequality rise during the pandemic. We’ve seen corporations enjoy Covid-19 rates relief and furlough payments while issuing huge dividends to shareholders. To be fair some companies have repaid state aid, but many have taken advantage of it.

When governments have to pay for massive economic upheavals, they generally issue bonds and gilts – an IOU from a government – where debts are covered by investors in exchange for a rock-solid tiny interest payment with the ultimate repayment of the loan of itself many decades down the line.

Prime Minister Boris Johnson

It was only in 2015, HM Treasury began to repay a consolidated loan as part of a redemption of bonds stretching as far back as the South Sea Bubble crisis of 1720, the Napoleonic and Crimean wars and the Irish potato famine.

Whatever happens, one thing is sure. 

There is no need to make everyone pay for this pandemic and the folly of Brexit. People can’t afford it. 

The wealthiest in our society can afford to pay a little more and it’s time they did.