Squeezing the rich through wealth and income taxes won't work – look what happened in France

We can take the opportunity to reform the tax system to raise revenue more efficiently from unearned wealth, rather than income, to provide a long-term settlement for the NHS and social care, writes Stephen Lynch

Chancellor Rishi Sunak faces a delicate balancing act – pressure for higher spending, with a smaller economy (REUTERS)

The art of taxation is infamously described as plucking the goose to obtain the largest number of feathers, with the smallest amount of hissing.

Chancellor Rishi Sunak faces a delicate balancing act – pressure for higher spending, with a smaller economy.

With little room to raise taxes, either in economic or political terms, he must be bold and creative in raising new revenue, in parallel with helping the economy return to growth.

Traditionally conservatives argue extra taxes are burdens on the economy. Take the unpopular stamp duty. It generates friction in the housing market, blocks first-time buyers, and those moving for work or downsizing to free up housing stock for families. National insurance is also frequently described as a “tax on jobs”. The Labour Party has floated wealth taxes as an option, confusing everyone in the process.

The Institute for Fiscal Studies are sceptical, saying any one-off levies won’t impact the £350bn deficit and that ongoing taxes haven’t worked anywhere else successfully.

Emanuel Macron abolished France’s wealth tax two years ago as it raised a paltry 1 per cent of the country’s total tax revenue. 10,000 of France’s wealthiest had left the country to avoid paying this and François Hollande’s 75 per cent “supertax” on incomes more than 1 million euros.

The difficulty of squeezing the rich with broad-bush wealth and lofty income taxes is you don’t get the revenue or the political support you expect. If high-earners like Harry Kane or Marcus Rashford leave for the continent, this doesn’t leave anyone else in Britain practically better off.

Where then, can Sunak look for new feathers to pluck?

Crosby Textor polling during lockdown showed that the British public were split on the best approach to paying down the considerable costs involved with mitigating the coronavirus. Only slightly more favoured greater, rather than less, government intervention through higher taxes and spending and more regulation and subsidies.

The most striking, if unsurprising, finding was the strong support for raising taxes on business – especially the larger corporates and tech titans.

The chancellor will have to square this reality with avoiding disincentivising entrepreneurs and companies trying to grow the economy. The treasury is therefore assessing alternative property and online taxes – on goods and on consumer deliveries – as potential replacements for business rates. The money raised from these new levies could pay for reducing business rates for the beleaguered high street. Governments typically find it easier to change less visible “indirect taxes” like this – on the purchase of goods and services.

Turning to property, the Social Market Foundation’s recent research advocates a 10 per cent tax to the gains in a home’s value when it is sold. Despite being forecast to bring in several hundreds of billions for the public coffers over two decades, the bold policy has been sidestepped by successive chancellors.

Given over two-thirds of over-70s voted to re-elect Boris Johnson, expect noisy hissing – half of UK homeowners’ housing wealth is held by older people. This is the same reason reforming the pension triple lock, pension tax relief and winter fuel allowance are fraught with political risk, despite delivering savings.

Philip Hammond’s digital services tax, levied on the revenues of the US digital giants, came into force from April and could also be widened in scope if it proves to be a substantial revenue source.

Few people want to have to argue against effective “Amazon taxes” at this time.

The alternatives are much less palatable: clobbering average earners’ incomes; continuing to borrow and run deficits unsustainably; cutting public services – all during a deep recession.

Barack Obama’s chief of staff Rahm Emanuel told us that we should never let a serious crisis go to waste, and the Treasury has an opportunity to do things they’d previously dismissed as impossible or unworkable, or that they’d never even considered before.

Our Irish neighbours used their financial crisis constructively to reform property taxes.

Here we can take the opportunity to reform the tax system to raise revenue more efficiently from unearned wealth, rather than income, to provide a long-term settlement for the NHS and social care. To level the playing field between the multinational tech companies and our cherished high street.

Stephen Lynch is a former Conservative press adviser