The Green party’s pledge to introduce a ‘wealth tax’ on the country’s richest individuals will be both damaging and difficult to implement, according to experts.
The manifesto, which was published today (June 12) included policies on housing, SMEs and tax.
FT Adviser asked experts for their verdict on the policies outlined in the manifesto and what the implications could be.
Tax
Rachael Griffin, tax and financial planning expert at Quilter, said the Greens' plans to introduce a “wealth tax” of 1 per cent annually on assets above £10mn and of 2 per cent on assets above £1bn might be popular amongst some.
However she warned the policy could have a damaging impact on the economy if investors are pushed to move their capital elsewhere.
“This could have significant repercussions, reducing investment incentives and potentially slowing economic growth. Similar to IHT, the prospect of being taxed twice is difficult to stomach for lots of people and there are always worries that a wealth tax is eventually levied on those with fewer assets if the economic climate dictates a higher tax take.
“Similarly, around the world many wealth taxes have had to be abolished. For example, in 1990, there were 12 countries, all in Europe, that levied individual net wealth taxes.
"However, now the majority have repealed them after the policies failed. We also must remember that the mega wealthy may not have the liquid assets to pay such a tax so it wouldn’t necessarily work in practice.”
Ollie Saiman, co-founder of Six Degrees, felt the tax would be “incredibly challenging” to implement in reality and would no doubt “raise a few eyebrows” amongst HNWIs.
He said: “With the majority of wealth in the UK held within illiquid assets such as privately-owned businesses, properties, and other investments, the key question will be around how such a tax would be implemented.
"If the tax includes all assets, gross or any debt, individuals could encounter a dry tax event, where they don’t have the liquidity to settle the tax liability.”
The party also announced it would increase CGT to equalise it with income tax which Laura Suter, director of personal finance at AJ Bell said would most likely hit business owners and investors.
Griffin added that the Green party’s proposal to introduce higher national insurance contributions may compound problems already prevalent in the current tax system.
She explained: “The added financing burden from these proposals in addition to the current tax cliff edges such as the high income child benefit thresholds and the loss of free childcare for anyone earning over £100,000 can dampen ambition and discourage individuals from pursuing higher earnings.
“While we need a tax system that proportionally taxes those with the broadest shoulders, we need to make sure that any tweaks to the rules don’t produce unwanted behaviours among the taxpaying public such as not opting for a promotion or taking part time hours simply to stay under certain thresholds.”
Pension tax relief
The Green party announced that under new plans people would be entitled to pension tax relief at a flat rate of 20 per cent, whereas currently tax relief is granted at whatever rate of income tax the person is paying.
Tom Selby, director of public policy at AJ Bell called the proposal a “colossal pension tax raid” that would “upend the UK retirement system”.
He said: “The proposal appears to have been put forward with little thought to the challenges it would create. Billions of pounds of higher and additional rate tax relief is paid to members of defined benefit schemes, with most of these workers now employed in the public sector.
"If a flat rate of pension tax relief at 20 per cent was introduced, these employees – including doctors in the NHS – would presumably need to be clobbered with a tax charge of thousands of pounds in order to shift them to the proposed flat rate. This would inevitably lead to huge unrest, the potential for key staff exiting public sector roles and new waves of strike action.
“The idea also raises questions of fairness between generations. The baby boomers have, on average, enjoyed more generous pension provision than younger people through the wider availability of defined benefit pensions, alongside the incentive of pension tax relief at their marginal rate of income tax.
“If the Greens’ idea was implemented, younger workers, who are less likely to be higher rate taxpayers today, would not have the opportunity to benefit from higher rate relief in the future. This proposal would therefore effectively be a twin attack on the public sector and younger pension savers.”
Housing
The Greens pledged to provide 150,000 new social homes every year through several different measures.
This included new build and the purchase/refurbishment of older housing stock, and a community right to buy for local authorities for several categories of property.
Matt Downie, chief executive of Crisis said it was “promising” to see the party put housing at the centre of its manifesto.
“For too long we have been selling off or demolishing social homes without replacing them, leaving hundreds of thousands of people without a secure place to call home. Providing 150,000 new social homes per year via new building and repurposing older properties would set us on a path to ending homelessness.
“At the same time, we work with many people whose homelessness is hidden, and the numbers of people being forced to sleep on the streets are again rising. We need all parties to acknowledge the scale of the crisis, and show that they have a comprehensive, cross-government plan for ending all forms of homelessness,” he added.
The party also stated that it would end the individual ‘right to buy’ scheme which would allow social homes to be kept for local communities “in perpetuity”.
As well as, introduce controls so local authorities can control rents if the market is unaffordable for many local people.
Harps Garcha, director at Brooklyns Financial, felt the policies were an attempt to get the renters' vote.
She said: “Rents are going up because of basic economics, namely supply and demand, so it's hard to see how 'controlling rents' will fix things.
“If anything, it'll just push landlords to sell. Once again, like other parties, this is just a move to win votes from renters. In the long run, it won't help the folks they say it will.
"On a brighter note, sprucing up older housing and ditching the 'right to buy' scheme will help those in need of social housing a lot faster than building from scratch."
alina.khan@ft.com
