FABIAN POLICY REPORT

A UNIQUE CONTRIBUTION Reducing budget deficits and tackling inequality with a one-off wealth tax, by Nick Donovan. Foreword by Dan Jarvis MP. About the Friedrich-Ebert-Stiftung

The Friedrich-Ebert-Stiftung is a non-profit German political foundation committed to the advancement of public policy issues in the spirit of the basic values of social democracy through research, education, and international cooperation.

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www.feslondon.org.uk ACKNOWLEDGEMENTS CONTENTS

I would like to thank Professor Sir Anthony Atkinson for Preface 2 pointing me towards the history of Labour’s one-off taxes on unearned income; Dr Margit Schratzenstaller-Altzinger, Foreword 3 Deputy director of the Austrian Institute of Economic Summary 4 Research for helpful comments on an earlier draft; Andrew Introduction 6 Harrop and Ed Wallis of the Fabian Society, Ulrich Storck and Silke Breimaier of the Friedrich Ebert Stiftung, and Max 1 The scale of the fiscal challenge 8 Lawson and David Quentin for their invaluable help and 2 Wealth in the UK 10 advice. Any errors that remain in this report are mine alone. 3 Wealth taxes 14 4 Proposal for a one-off levy on passive wealth 18 5 Discussion 22 Conclusion 26 Endnotes 27

ABOUT THE AUTHOR

Nick Donovan is campaign director at Global Witness, an anti-corruption NGO. Previously he was assistant director at the Royal British Legion – following military service in a bomb disposal team in Iraq. He is also director of Plane Saver Credit Union and owner of his own small business. Earlier in his career he worked as a civil servant in the Prime Minister’s Strategy Unit and ran an NGO programme building legal cases against war criminals and génocidaires. His previous publications include A Rainy Day Fund: Why Britain needs a financial sector revenue stabilisation account (with Victoria Barr, Fabian Society, 2012) and The Enforce- ment of International Criminal Law (Aegis Trust, 2009). He writes in a strictly personal capacity.

[email protected] Designed by Soapbox, ONLINE ANNEX www.fabians.org.uk www.soapbox.co.uk Worked examples of how the tax would operate in General Secretary, Like all publications of the Fabian a practice for a range of (illustrative) taxpayers can be Andrew Harrop Society, this report represents not Editorial Director, the collective views of the Society, found at: www.fabians.org.uk/publications/a-unique- Ed Wallis but only the views of the individual contribution Report Author, writers. The responsibility of the Nick Donovan Society is limited to approving its fabian society publications as worthy of consider- 61 Petty France ation within the labour movement. London SW1H 9EU 020 7227 4900 (main) First published in June 2016 020 7976 7153 (fax)

1 / A unique contribution PREFACE reassure the electorate as a whole that introduced by Tony Blair. But the idea will The Panama Papers have put questions they will manage the economy well. attract interest across Europe. of wealth, tax and inequality right back Centre left parties across Europe are Action on global wealth should be at the top of the political agenda. The looking for new ways to tackle inequal- taken by countries working together unprecedented data leak provided per- ity, and a progressive approach to taxa- in partnership, which is why we are so haps the most vivid chapter yet in what tion must be one means to achieve that pleased that our two organisations are has become one of the defining stories of goal. The Friedrich-Ebert-Stiftung and jointly publishing this report. We are keen our times: an untrammelled elite, whose the Fabian Society opened the debate to learn lessons and share ideas across extreme wealth allows them to play by a last year, with a collection of essays borders, and this proposal for a one-off different set of rules to the rest of society. called Tax for our Times: How the left can wealth levy draws explicitly from debates And yet, it also highlighted the politi- reinvent taxation. We now build on this and research in Germany. But also, in a cal conundrum which faces parties of the with a new proposal to enhance social globalised world, policy co-ordination is left across the European continent. While justice through taxation. crucial, when capital crosses borders and the gap between the rich and poor grows The ‘unique contribution’ – a one-off jurisdictions so easily. It is vital that social ever wider, and popular anger at rising levy on the passive wealth of the super- democrats work together to develop the inequality grows more visceral, social rich – is a pragmatic measure that can be right proposals to fit our own domestic democrats still seem unable to profit po- used to reduce the deficit and build up economic and political contexts; but also litically. The ‘progressive moment’ that the resilience to future economic shocks. But co-ordinate internationally to present a financial crisis of 2007–8 was supposed it conveys radical intent by doing so in a united front in tackling tax avoidance and to herald has in fact proved the opposite, way that socialises a share of the stagger- wealth inequality, so that we all play by with fiscal conservatism and political ingly unequal – and sometimes unearned the same rules. populism ruling the day. Social democrats – financial rewards that the super-rich are Andrew Harrop is general secretary of the now find themselves in a double bind. able to generate, not from their hard work Fabian Society They seem unable to excite voters on the but from wealth begetting wealth. To UK left, who seek proof that they will tackle readers, the proposal will have historical Ulrich Storck is director of the London Office rampant inequalities, and also unable to echoes of the windfall tax on the utilities, of the Friedrich-Ebert-Stiftung

2 / A unique contribution do so in a fair way: the threshold is so high that only those who are truly wealthy pay FOREWORD the levy, there are exemptions for earned income and assets used for trading, it is By Dan Jarvis, Labour MP for Barnsley Central one-off so those who pay it aren’t driven away, it exempts many difficult to value objects such as family heirlooms and it is largely non-intrusive except for those who Repairing our social fabric This sense of unfairness has been exac- may have dodged taxes in the past. Labour used the sense of national purpose erbated by austerity. In the aftermath of the Indeed, for those who have avoided tax that followed the second world war to global financial crash George Osborne has in the past, the unique contribution has a build the national health service and the placed the burden for reducing the deficit role in restoring the status quo. If the levy welfare state. These institutions joined on the narrowest shoulders. He’s cut tax raised more revenue than expected the universal education, juries and national credits for those in work, attempted to cut proceeds could be used to cut income taxes service in bringing together individu- disability benefits, downsized our military or national insurance contributions. als from all backgrounds. More recently and starved the public sector. The proposal sits in a long Labour Labour has laid the building blocks for What’s worse is that none of those pay- history of thinking about one-off taxes universal childcare and as I have argued, ing for the repercussions of the financial to repair public finances or damage to for a renewal of national citizen service – a crisis had anything to do with causing it. our social fabric. After the first world war, voluntary service for all our young people. Last year 2,274 pupils in my constituency Labour proposed a one-off levy. After the Today, powerful forces – which the were eligible for free school meals. More second world war, Stafford Cripps imposed Tories either condone or accelerate – are than half the children in Barnsley Central a ‘special contribution’ – a measure strongly tearing at the ties that bind us together. leave school without five good GCSEs. Not supported by Roy Jenkins, who introduced Inequality of wealth took off during one of those kids owned a credit default his own version of the levy when chan- the Thatcher years. Extreme inequality swap or a collateralised debt obligation – cellor in 1968. New Labour introduced tempts some in our society to opt out of the financial instruments that helped cause the ‘windfall tax’ on the excess profits of Britain’s shared institutions: state schools, the banking crisis. Yet, according the Insti- privatised utilities to pay for the New Deal NHS hospitals, even taxes. This effect var- tute for Fiscal Studies, real school spending welfare-to-work scheme for the long term ies in its significance. Elite schooling turns per pupil in England will fall by 8 per cent unemployed. Each proposal or measure inequality of outcome into inequality of in this parliament, while spending on fur- was suited to its time. opportunity – as the wealthy buy better ther education fell by 14 per cent over the A unique contribution would certainly outcomes for their children. Private hospi- last five years. This is both poor ethics and have made sense instead of George Os- tals insulated the wealthy from the shared bad economics. borne’s VAT rises and spending cuts he experience of the shocking decline in the imposed in 2010. The economic and fiscal NHS during the Thatcher years. But noth- In place of cuts circumstances when Labour next comes to ing is more corrosive to the body politic The British public expect Labour to be power will be different to those of 2010 or than tax avoidance. a safe pair of hands with their money. today – so the unique contribution might Most ordinary people – nurses, shop Specifically, they expect the deficit to be not be suitable then. However, this type of workers, soldiers – pay their taxes through reduced over the medium term – but for thinking is what Labour needs to be doing PAYE. Small business owners are aware of us to do so in a fair way. This is why the in opposition. every penny they send off to the taxman. idea of a unique contribution is worthy of We must demonstrate that we are fis- It sticks in their craw that others, believing consideration – it opens up the possibility cally responsible and yet present a clear that taxes are ‘just for the little people’, ar- of a one-off response to a once in a lifetime alternative to the Tories. When we do range their affairs so that they can reduce financial crisis. enter government again our job will be to their taxes through fictitious film schemes Rather than year after year of grinding rebuild our public services, invest in our or Swiss bank accounts. The Panama cuts, or a heavier tax burden on income economy and narrow inequalities. Our Papers revelations feed the suspicion that and earnings, a one-off levy on net wealth country is fracturing constitutionally and there’s one rule for them, and another for over £10 million could make a significant socially, our job will be to bring our country the rest of us. dent in the deficit. Moreover, it proposes to together again.

3 / A unique contribution ceeds would take a significant bite out of the current budget deficit. For example, the SUMMARY recent highly controversial tax credit cuts were costed at around £4bn per annum or about £20bn over the parliament. It should be possible for a one-off levy to raise sums in the same order of magnitude. If the levy his report proposes a one-off levy on The unique contribution proposed in raises more than is needed to reduce the Tthe passive wealth of the super-rich, this report is a one-off levy on long-term deficit then proceeds could be used to with a more stringent approach taken residents of the UK with net passive wealth reduce public debt (as a ratio of GDP) or with those who have used tax havens or over £10 million, with a second, higher, rate perhaps to reduce income taxes on low to domestic tax avoidance schemes in the charged on net wealth which exceeds a middle income earners. recent past. Revenue would be used to threshold of £20 million. ‘High risk’ taxpay- The anger that the Panama Papers reduce the deficit, thereby easing pressure ers – those who have moved assets offshore evokes stems from the sense that there is on spending cuts and taxes on income or used domestic tax avoidance schemes, one rule for those that surfed the offshore and earnings. or who are non-doms who pay the remit- waves of the financial bubble, and another Importantly, it would also address tance basis charge – would be required to for the rest of us. Worse still, much of the inequality, which has become so extreme undergo a full, stringent valuation exercise. burden of deficit reduction has been placed that a household at the top 1 per cent has However, ‘low risk’ taxpayers will have ac- on those who had no hand in the financial wealth that is at least 228 times greater than cess to a streamlined assessment of their crisis – by those who pay their taxes by a household in the bottom 10 per cent. wealth based upon past declared unearned PAYE, or who depend on social security to Much of the wealth of the super-rich income, avoiding difficult assessments of get by. The Panama Papers and the Con- is held as financial assets such as shares, family heirlooms. The simplicity of this cal- servatives’ post-crash fiscal choices reveal bonds and derivatives. This generates culation removes the objection that wealth a society that has become unbalanced. The passive income, which in turn begets pas- taxes are necessarily intrusive. Unearned unique contribution is designed to be as sive wealth. Some of this wealth is routed income would include all income except unobtrusive as possible for the likes of JK through tax avoidance vehicles and off- that from employment or trading. Rowling or James Dyson, who earned their shore tax havens. Much of it would have It is not known how much revenue money and paid their taxes, while taking been ‘under-taxed’. might be raised as the tax base – the wealth a strict approach to calculating the wealth In the face of such inequality of wealth, of the super-rich – is largely terra incognita; of those who may have underpaid taxes in citizens can never be truly equal partici- the unique contribution itself would be an the past through the transfer of funds to tax pants in public life, and the super-rich can exercise in map making. However, the pro- havens or the use of avoidance schemes. use their influence to shape the rules of the game to their advantage. Other countries have annual wealth taxes which successfully raise small but significant sums. However, the recurrent nature of annual taxes might lead to sev- eral distortionary effects such as increased avoidance, emigration or a reduction in investment or entrepreneurial risk taking. These effects are often overstated but, even so, it is possible to avoid them with a one- off levy. The most detailed recent proposal for a one-off levy has been in Germany. Analysts at the Bundesbank and elsewhere have found that it produces few distortions which might inhibit growth, and could

raise up to €100bn. © Image Money

4 / A unique contribution A Unique Contribution Reducing budget deficits and tackling inequality with a one-off wealth tax

by Nick Donovan

5 / A unique contribution 12.7 per cent to 23.3 per cent.2 A rough comparison of the total £576 billion wealth INTRODUCTION owned by the top 1,000 shows that it is greater than the total wealth of the bot- tom 40 per cent of UK households (who own £496bn), is more than pension wealth of the bottom 60 per cent (£491 billion), he repercussions of the global finan- of some, the left was not the beneficiary of and exceeds the “bottom” 90 per cent of Tcial crisis still shape European politics. the crisis. Similarly, while public anger at UK households’ (non-pension) financial First, large public deficits developed as tax avoidance and concern over the vast wealth (£546 billion).3 governments, in order to avoid a global de- scale of inequality is acute, there is no Much of the wealth of the super-rich pression, bailed out banks and propped up guarantee that voters will turn to the left is held as financial assets such as shares, economies. This gave an opening to politi- for the answers. The challenge is to provide bonds and derivatives. This generates cians on the right to place deficit reduction an authentically social democratic answer passive income, which in turn begets as the central economic task in the mind of to the new politics of the financial crisis passive wealth. Some of this wealth is the public – a place where it remains. and ensuing public deficits – while appeal- routed through tax avoidance vehicles and Second, as the need to raise revenue ing to the public as they are, not as we wish offshore tax havens. Some $140bn of UK became acute, the public view of the world them to be. households’ wealth is held in Switzerland, of tax-avoiding offshore finance swiftly with many tens of billions held in other moved from indifference to anger. Scandal In the face of such secrecy jurisdictions.4 Much of this wealth after scandal – most recently the Panama inequality of wealth, citizens would have been ‘under-taxed’. Papers – have revealed how some of In the face of such inequality of wealth, world’s wealthiest have exploited gaps in can never be truly equal citizens can never be truly equal partici- the system to keep their wealth away from participants in public life pants in public life, and the super-rich can the tax authorities. use their influence to shape the rules of the Third, public interest in the sheer scale It is in this spirit that this report propos- game to their advantage. Inequality of out- of wealth inequality has partly multiplied es a ‘unique contribution’: a one-off levy on come is then used to purchase inequality of because parties of the right have chosen to the passive wealth of the super-rich (those opportunity for future generations. reduce the deficit largely through spending with net wealth over £10 million). The It is for these and other more prosaic cuts – which disproportionately affect the unique contribution takes a more stringent reasons, such as the need to raise revenue, poorest – rather than tax rises. It is difficult approach with those who have used tax that other countries such as Norway, France to imagine that Thomas Piketty’s Capital havens or domestic avoidance schemes and Switzerland have annual wealth taxes in the Twenty First Century, a 700 page eco- in the past. Revenue would be used to which successfully raise small but signifi- nomics book containing equations, would reduce the deficit, thereby easing pressure cant sums. The recurrent nature of annual have sold over 1.5 million copies in the on spending cuts and taxes on income and taxes might lead to several distortionary years before the financial crisis. earnings.* effects such as increased avoidance, emi- And yet, conservatives and populists It would also, at least temporarily, re- gration or a reduction in investment or en- have proved more adept than the left in duce inequality. Inequality of wealth is so trepreneurial risk taking. These effects are adapting to the changed political land- extreme in the UK that a household at the often overstated but, even so, it is possible scape. The cause of the global financial top 1 per cent of the wealth distribution to avoid them – and associated political ob- crisis was the build-up of over-leveraged has wealth (£2.9 million or above) that is stacles – with a one-off levy. This is an idea credit in an under-regulated banking sys- 228 times higher than a household just which has been proposed frequently when tem in which the excesses of financial capi- in the bottom 10 per cent of households public debt has reached high levels – by talism were too easily transmitted to the (£12,550).1 Estimates of the share of total David Ricardo after the Napoleonic wars, real economy. Yet, against the expectations wealth held by the top 1 per cent vary from by Sidney Webb and Arthur Cecil Pigou

*This report should be read alongside a previous Fabian Society paper in which I proposed that Labour adopt a Financial Sector Revenue Stabilisation Account – a ‘rainy day fund’. This is a type of sovereign wealth fund to be used in a future banking crisis. Our tax revenues – which collapsed in 2008 – are highly dependent on an unstable financial sector. Together, this ‘rainy day fund’ and a ‘unique contribution’ would form a visible yet responsible reply to the accusation that Labour doesn’t ‘fix the roof while the sun was shining’.

6 / A unique contribution after the first world war and by J.M. Keynes mon reporting standards’ have been agreed Papers evokes stems from the belief that and Friedrich von Hayek after the second between countries, whereby both banking there is one rule for those that surfed the world war. In Germany a one-off tax, the information and, sometimes, beneficial offshore waves of the financial bubble, and so-called Lastenausgleich, was actually lev- ownership details will be automatically another for the rest of us. Worse still, much ied after the war. Indeed the most detailed exchanged across an increasing number of of the burden of deficit reduction has been recent proposal for a one-off levy has been jurisdictions. This development, in addition placed on those who had no hand in the in Germany. Analysts at the Bundesbank to a variety of leaks about offshore finance, financial crisis – by those who pay their and elsewhere have examined proposals means many might consider coming clean. taxes by PAYE, or who depend on social and found that it produces few distortions Now is a more auspicious time to launch security to get by. The Panama Papers and which might inhibit growth, and could such a levy than ever before. the Conservatives’ post-crash fiscal choices raise up to €100bn by taxing the top 0.6 per reveal a society that has become unbal- cent of the German adult population. The unique contribution anced. The one-off levy is designed to be The unique contribution proposed in tilts the tax system away as unobtrusive as possible for the likes of this report is a one-off levy on long-term JK Rowling, while taking a strict approach residents of the UK with net passive wealth from earned income to calculating the wealth of those who may over £10 million, with a second, higher, towards unearned wealth have underpaid taxes in the past through rate charged on net wealth which exceeds the transfer of funds to tax havens or the a threshold of £20 million. ‘High risk’ It is not known how much revenue use of avoidance schemes. The unique taxpayers – those who have moved assets might be raised as the tax base – the wealth contribution is thus partly a conservative offshore or used domestic tax avoidance of the super-rich – is largely terra incognita; exercise in rebalancing: a return in the schemes, or who are non-doms who the unique contribution itself would be an direction of the status quo ante – through pay the remittance basis charge – would exercise in map making. This uncertainty is increasing the contributions made by those be required to undergo a full, stringent common when other taxes which deal with who may have previously avoided paying valuation exercise. However, ‘low risk’ offshore finance have been introduced, their fair share. taxpayers will have access to a streamlined such as the annual tax on enveloped dwell- The use of the word conservative is valuation method. Their net wealth will be ings and the UK-Swiss tax deal. However, not just rhetoric. This is one of the most calculated by adding together the value of the proceeds from this one-off levy would cautious proposals possible for taxing their main residence (minus any mortgage), take a significant bite out of the current wealth, perhaps more so than taxing gifts their private pension wealth and their budget deficit. For example, the recent or introducing regular annual wealth taxa- deemed investment wealth. Deemed highly controversial tax credit cuts (which tion. Even inheritance tax is more radical investment wealth can be easily calculated still persist in the future plans for universal as it has a much lower threshold and a by tax authorities using data on unearned credit) were costed at around £4bn per an- high 40 per cent tax rate, although it is income submitted on previous tax returns. num or about £20bn over the parliament. avoided by many. The unique contribution Unearned income would include all It should be possible for a one-off levy to is a one-off, with a high threshold, it tilts income except that from employment or raise sums in the same order of magnitude. the tax system away from earned income trading. Wealth which doesn’t generate If the levy raises more than is needed to towards unearned wealth, it exempts fam- unearned income, such as jewellery and reduce the deficit, then proceeds could be ily heirlooms and its assessment method other family heirlooms, is excluded from used to reduce public debt (as a ratio of is intrusive only for those who may have the calculation. The simplicity of this GDP) or perhaps to reduce income taxes underpaid tax in the past. It lies firmly method removes the objection that wealth on low to middle income earners. within a moderate Labour tradition of taxes are necessarily intrusive. The unique contribution also has a re- similar measures: from Stafford Cripps’ Although some who have kept their storative purpose. People do not begrudge ‘special contribution’, to Roy Jenkins’ ‘spe- undeclared wealth hidden offshore, refus- the likes of JK Rowling or Sir James Dyson cial charge’, to Tony Blair’s windfall tax on ing to participate in remarkably generous their wealth. For both author and entre- the excess profits of the privatised utilities. tax amnesties, might continue to so, they preneur earned their money through hard While in opposition, the centre left needs will still be taxed on their visible wealth. work, and then have proceeded to play the to rejuvenate its thinking. The unique The failure to declare themselves as high game fairly. Both have been clear about not contribution is an attempt to respond to a risk will attract serious penalties if found using tax havens or avoidance schemes. British public who are as concerned about out at a later date. In recent years, ‘com- The sense of unfairness that the Panama the deficit as they are about inequality.

7 / A unique contribution is particularly vulnerable to systemic crises of this kind. To prepare for such an 1. THE SCALE OF THE eventuality, in a previous Fabian Society report I proposed a ‘rainy day fund’ (a form FISCAL CHALLENGE of sovereign wealth fund to be used in a future banking crisis) and endorsed the Institute for Fiscal Studies (IFS) proposal of a ‘sustainable commitments’ rule – which targets the amount spent on debt interest The legacy of the financial crisis the cost of borrowing is low at the moment and private finance initiative (PFI) pay- has left us with much higher (enabling the UK to sensibly borrow for ments instead of the debt to GDP ratio as public debts… infrastructure investment at historically a long term measure of intergenerational Due to our dependence on the City of low rates), eventually interest rates will fairness.9 Whichever fiscal rule is chosen, London, the UK was particularly badly rise, meaning that as bonds mature and over the medium term it is better to have hit by the global financial crisis. This eco- the debt is refinanced, future generations the fiscal headroom to respond, as we did nomic shock was enormous. The UK suf- will be spending more on debt interest, as in 2008, to any future crisis. This is particu- fered its first run on a bank in 150 years in opposed to, say, spending on education larly true if interest rates are close to the 2007. Economic confidence and industrial and the NHS. This shouldn’t be a problem ‘zero lower bound’, reducing our ability output plummeted across the globe. At if the borrowing is for investment that to respond using conventional monetary one point there was a real risk that several creates assets (for example, workers with policy such as lowering interest rates. Even British banks would not open their doors higher skills, useful infrastructure) which in a crisis, the fiscal politics of moving from on Monday morning. Labour’s response make us richer in the future. However, over a debt to GDP ratio of 80 per cent to, say, to the global crisis was, entirely correctly, the medium term an ageing population 120 per cent are trickier than those of a to prop up the economy and recapitalise means that non-investment, ‘day-to-day’ move from 40 per cent to 80 per cent. the banks. spending on items such as social care and Finally, it is unclear whether paying for However, this has left a legacy of high pensions, will rise. For instance, the recent public spending through borrowing from public debt and annual deficits. The last NHS Five Year Forward View identified a the wealthy (who receive, traditionally at Labour government adopted the ‘sustain- £30bn a year gap in funding which needs least, interest from lending to the state) has able investment’ rule; this fiscal rule re- filling by 2020–21.7 These types of increases more progressive distributional outcomes, quired the government to keep the public in demand are projected to rise far beyond than taxing them.10 sector debt (net of its short-term financial 2020 by the Office for Budget Responsibil- assets) at a ‘stable and prudent’ level, de- ity. Their central forecast has health spend- ...but the Conservative approach fined as less than 40 per cent of national ing rising from 6.4 per cent of GDP in unjustly targets those on low to income (GDP). Public sector net debt was 2018–19 to 8.5 per cent of GDP in 2063–64; middle incomes 40.9 per cent when Labour came to power state pension costs increasing from 5.5 per To be clear this is not an argument in favour in 1997 and remained between 30.9 per cent of GDP in 2018–19 to 7.9 per cent of George Osborne’s permanent campaign cent and 38.7 per cent, until the global of GDP in 2063–64; and long-term social to shrink the size of the state. The approach financial crisis hit the UK in 2007–8.5 Now, care costs rising from 1.2 per cent of GDP he has taken is wrong in its timing, and un- in 2015–16, public sector net debt is double in 2018–19 to 2.3 per cent in 2063–64.8 In just in its effects on ordinary families. the pre-crisis figure – 83.5 per cent – and this context, larger debt interest payments There are many different political choic- is only projected to fall to 74.7 per cent by as a proportion of GDP mean future gen- es available in how to repair the UK’s pub- 2020–21.6 erations will find it harder to finance other lic finances. Decisions on the speed, timing forms of necessary expenditure. over the business cycle, and the mix of tax …there are good reasons to reduce The second is that, probably not immi- and spending decisions dictate who bears public sector net debt interest over nently but at some point over the coming the burden. The Conservative government the medium term… decades, another financial crisis on the has chosen to rely on cuts to social security There are two underlying reasons for want- scale of 1929 or 2008 is almost certain to and tax credit support to working families, ing to reduce public sector net debt over occur. The UK, with a large financial sec- coupled with large reductions in spending the medium term. The first is that, although tor relative to the size of our economy, on certain public services.

8 / A unique contribution First, during the 2015 election cam- to blood donation.14 Most people can do- Alternatives, such as raising existing paign, George Osborne repeated an oft- nate one or two pints of blood. However, if indirect taxes such as VAT, raise significant made promise to find £12bn of annual asked to donate more and more, then their sums but hit those on low incomes hard- savings from the social security budget. vital functions quickly cease to work and est. Increases in income tax and national While he may have suffered a temporary the body starts to shut down. insurance contributions also have a detri- set-back following the furore surrounding In essence, working families and those mental effect on work incentives and jobs, the 2016 budget, many cuts have already dependent on social security and public particularly among those on low and mid- been made. With most benefits for pen- services, are bearing the brunt of the bur- dling wages.15 sioners protected, this inevitably means den for repairing public finances ravaged There is an alternative. Large public that the axe has fallen on support to those by a financial crisis they did not cause. debts are accompanied by vast private of working age – particularly housing wealth, disproportionately owned by the benefit and universal credit. So far this has There is an alternative top 1 per cent. This reports sets out an meant changes to the design of tax credits Each choice reflects political priorities. alternative proposal for a new unique and universal credit, which will affect the The Conservatives have prioritised cutting contribution – a one-off levy on the passive work incentives of low and middle income inheritance tax, a tax paid by a vanishingly wealth held by the super-rich. The levy has households, and a benefit cap which par- small number of wealthy households, cor- an innovative valuation system which takes ticularly affects those in receipt of housing poration tax, and reducing the top rate of into account whether the taxpayer has pre- benefit who live in expensive areas. A less income tax on incomes over £150,000 per viously used a tax haven (secrecy jurisdic- noticeable change has been the freezing of annum from 50p to 45p. tion) or a domestic tax avoidance vehicle. the annual uprating of benefits. As infla- tion slowly erodes spending power, these amount to real terms cuts in the value of most benefits, with the exception of the basic state pension, which is uprated every year by the ‘triple lock’.11 One result of these measures is that the Institute for Fiscal Studies predicts that relative child poverty will increase dramatically by 7.8 percentage points: from 17.8 per cent in 2015–16 to 25.7 per cent in 2020–21.12 Second, government spending on pub- lic services is to be cut even further in this parliament, following five years of austerity under the coalition government. Certain budgets – the NHS, schools and overseas aid – are protected from real terms cuts, or have even seen their budgets increase. However, this makes the likely impact on unprotected areas of public services – job centres, the police, courts, business sup- port, local government including social care, libraries, even more profound. In the 2016 Green Budget, the IFS calculated that the cumulative departmental cuts from 2010/11 to 2019/20 will be: Education (8.5 per cent), Business (40 per cent), Justice (45 per cent) and Home Office (25 per cent).13 Here, the best analogy with the relentless

effects of annual cuts on public services is © Mariano Mantel

9 / A unique contribution The very rich own large amounts of financial wealth 2. WEALTH IN THE UK There are a wide variety of types of wealth. The ONS21 estimate of £9.515tn aggregate total wealth is comprised of:

• Net property wealth ach year people receive an income, Rich List data and combine it with the (£3.9tn, 35 per cent of the total) Efor example: earnings, benefits, rent, ONS data to make a rough comparison.18 • Net financial wealth dividends and interest. Wealth represents The top 1,000 in the 2016 UK rich list own (£1.6tn, 14 per cent) the accumulation of that income. It is a £576bn wealth – a figure greater than the • Physical wealth (£1.1tn, 10 per cent) measure of a stock not a flow. Think of a total wealth of the bottom 40 per cent of • Private pension wealth bath being filled: the amount of water in UK households (who own £496bn), is more (£4.4tn, 40 per cent) the bath is your wealth, the water flowing than pension wealth of the bottom 60 per from the tap is your income. cent (£491bn), and exceeds the “bottom” 90 Some in the bottom 10 per cent (under a per cent of UK households’ (non-pension) threshold of £12,550) have no wealth apart Wealth in the UK is financial wealth (£546bn).19 from a few possessions, surviving day-to- disproportionately owned Regardless of the source data, the day on their income. Others have negative by the top 1 per cent general picture is clear: that the stock of net wealth, the result of personal indebt- The Office of National Statistics (ONS) wealth in the UK is large and distributed edness. As we start to move up the scale, estimate is that in 2012–14, the aggregate extremely unequally.20 more families hold some forms of property total wealth of all private households in Great Britain was £11.1tn.16 FIGURE 1 The ONS estimate that the top 10 per Breakdown of aggregate total wealth, by deciles and components: GB, 2012/1423 cent of households own 45 per cent of total aggregate wealth, while the bottom 6,000,000 50 per cent of households own 9 per cent. This data is derived from a survey and so comes with known shortcomings, such as 5,000,000 lower response rates among the super- rich, and the failure to report wealth held offshore. In addition to hiding the real, 4,000,000 higher level of UK households’ wealth, these shortcomings also affect the re- ported distribution of that wealth. This 3,000,000 makes it particularly problematic to use survey data for assessing the wealth of the £ millions top 1 per cent. 2,000,000 Other methods use inheritance tax data to infer the wealth of the very rich – al- though these also suffer from the weakness 1,000,000 that inheritance tax is frequently avoided through estate planning. The result is that there are a wide range of estimates of 0 wealth inequality. Estimates of the share of 1st 2nd 3rd 4th 5th 6th 7th 8th 9th 10th total wealth held by the top 1 per cent vary from 12.7 per cent (survey data) to 21 per -1,000,000 cent (tax data).17 Private pension wealth Physical wealth Property wealth (net) Financial wealth (net) Finally, others use the Sunday Times

10 / A unique contribution wealth – principally their home, minus any the media. However, much is held in the This is the key point: much of the wealth mortgage – and some form of physical form of financial assets – whether held in a of the very rich produces further income, wealth – cars, jewellery, even personalised private pension or not – that yield passive and their income accumulates to become number plates. Others accumulate small income and capital gains. Good household wealth. This is passive income in that the amounts of financial wealth, usually small survey data about the assets held by the very wealthy do not need to work to re- amounts of savings held in bank accounts top 1 per cent doesn’t exist. However, it ceive an income. The hard work is done by and cash ISAs. The bottom 24 per cent is instructive to look at one prominent others – entrepreneurs and workers who of households own no private pension public example of an asset portfolio. In mix the hard work and ideas needed to wealth.22 But towards the top of the scale a 2014 those managing the $36.4bn endow- create wealth, but whose need for capital much greater proportion of a household’s ment fund for Harvard University invested puts them in hock to others who, through wealth begins to be held as financial and 51 per cent of its assets in equity – shares the financial system, take stakes in their private pension wealth. of companies, including private equity businesses or lend them money. Of course, (stakes in companies not traded on public entrepreneurial success often depends The financial wealth of the very stock exchanges), 11 per cent in natural upon access to that capital. But these are rich is different to that held by resources such as timber and agricultural not, in general, the entrepreneur-friendly the rest of us land, 12 per cent in property, 16 per cent tycoons of Dragon’s Den. Their shares in According to the ONS, the richest 10 per in hedge funds who are able, among other businesses are not always long-term stakes cent hold 43 per cent of their net wealth roles, to ‘short sell’ stocks so that investors accompanied by wise advice. Instead, those in pension rights, 31 per cent in property, make money even when the stock market managing their share portfolios might hold 21 per cent as financial wealth and just is falling, and 10 per cent in fixed income stocks for seconds or minutes, frequently 5 per cent in physical wealth.24 assets such as corporate and government trading in order to exploit minute move- But what about the holdings of the top bonds.25 While the Harvard portfolio is ments in ‘momentum’. In time, passive 1 per cent, or even the top 0.1 per cent? unlike that of a typical wealthy household income begets passive wealth. The super- Some of the wealth of the very rich is in- in that it does not hold any of its assets in rich do not even need to actively manage deed held in their mansions, and perhaps cash, it does demonstrate the sheer range their passive wealth – their portfolio man- status goods such as fine art and boats. of income generating assets that can held agers, private bankers and lawyers do that This is the visible wealth we read about in by the very rich. for them. © Victor

11 / A unique contribution These managers offer some or all of the be established in tax havens where the A significant amount of UK wealth following services: rates of income and corporation tax are is held offshore zero, and inter-company relationships As the Panama Papers revealed many of • Higher rates of return. While you or can be established which, through these tax efficient paths take geographi- I might receive a 1 or 2 per cent rate transactions such as inter-company cally circuitous routes through a small of interest on our savings account, loans and abusive transfer pricing, can number of secrecy jurisdictions such as the very rich have access to a wider ensure that most profits are made where the British Virgin Islands and Switzerland. variety of investments such as the direct taxes are low or non-existent. How much of the UK’s wealth might be services offered by hedge funds. These found offshore? funds often have minimum thresholds • Secrecy. Whereas in some countries By definition this is an impossible ques- for investment of millions or tens of such as Sweden, Norway and Finland, tion to answer fully. However, despite the millions of dollars. Through portfolio an individual’s tax return is made public, shortcomings in the data, some pioneering diversification, short selling, and and in the UK registries of the beneficial estimates of the global amount of off- complex financial instruments, rates owners of companies are being estab- shore wealth have been made. These vary of return can be higher than those lished, many tax havens are also secrecy significantly according to the methodolo- available to other households. For the jurisdictions. They offer a chance to gies used, the breadth of forms of wealth very rich the effects can be dramatic – shield wealth from the prying eyes of measured, and the jurisdictions regarded and it is probable that the richer you disgruntled partners and, mostly, the tax as ‘offshore’.28 For example, the Boston are, the higher the rate of return you authorities. Thus the real beneficiaries Consulting Group, using estimates derived can achieve. Returning to the example of a trust, foundation, company – and from interviews with wealth managers, es- of Harvard University, Piketty finds the assets owned or enjoyed by the real timate that some $11tn of financial wealth that the average real rate of return people behind those entities – can be is held offshore – with $2.7tn held in Swit- (after inflation and all administrative kept secret. zerland alone.29 costs and fees) from 1980 to 2010 was An innovative methodology used by 10.2 per cent for those with the largest In most cases wealth Professor Gabriel Zucman has used two endowments – Harvard, Yale and flows along the most techniques to estimate financial wealth. Princeton; 8.8 per cent for 60 colleges The first is analysis of data released by with endowments over $1bn; 7.8 ‘tax efficient’ paths in the Swiss central bank on assets held by per cent for those with endowments the same way that water foreigners in the Swiss banking system: between $1bn and $500 million; 7.1 per flows down the steepest $2.3tn (as at spring 2015).30 Luxembourg cent for endowments from $500–100 available gradient has also recently released similar informa- million and 6.2 per cent for colleges tion, showing that foreign households have starting with less than $100 million.26 $370bn there. (Although this figure under- None of the very rich have to avail them- states the true amount of offshore wealth • Minimising taxes. An integral part of selves of the proffered chance to minimise in Luxembourg because it excludes some the services offered by these managers taxes and hide their activities – but those $350bn not directly held by households but are methods of reducing the amount who don’t, such as the author of Harry Pot- through family offices and other interme- of tax paid on both the wealth and any ter books, JK Rowling, are rare enough to be diaries).31 The second exploits cross border passive income. At its simplest, ac- noteworthy in the media.27 Compared with discrepancies in the statistics reported by countants will advise business owners the majority of us however, whose earnings share registries and banks: on whether to take money as a salary are subject to automatic taxation through or as a dividend, which attract different PAYE, some of the wealth of the very rich “My own attempt relies on the anomalies tax rates. Foundations and trusts can be has been under-taxed when compared with in global investment statistics caused by established – these place distance be- the original intent of democratically-elected offshore fortunes. Take the hypothetical tween the legal owners and the benefi- governments of the countries in which the case of Elizabeth, a UK resident who owns ciaries of that wealth. This can be useful super-rich tend to live. In most cases wealth stock in Google through her Swiss account. in, for example, minimising inheritance flows along the most ‘tax efficient’ paths in In the United States, statisticians observe tax. Companies – sometimes under the the same way that water flows down the that a foreign investor owns US securities ultimate control of just one person – can steepest available gradient. and record a liability. UK statisticians

12 / A unique contribution should record an asset held by a UK resi- dent but they don’t, because they have no way to observe Elizabeth’s offshore hold- ings. Because Elizabeth’s equity holdings are neither assets nor liabilities for Swit- zerland, over there nothing is recorded in the investment statistics. In the end, more liabilities than assets show up in global investment data. Strikingly, more than 20 per cent of the world’s cross-border equities have no identifiable owner. By analysing these anomalies, I estimate that 8 per cent of the global financial wealth of households is held in tax havens, about $7.6tn at the end of 2013. … My method probably delivers a lower bound, in part because it only captures financial wealth and disregards real assets.”32

So how much of this wealth held off- © William Warby shore might be held by UK households? Unfortunately, Professor Zucman’s tech- measures of financial wealth – physical as- HMRC and other relevant tax authorities. nique doesn’t allow for a precise estimate sets and property (such as, say, a yacht held Since 2005 any EU citizen who earns inter- of wealth held by households in individual in the name of an offshore company but est on their Swiss bank accounts has had states. However, using the data from the enjoyed by a particular family; or paintings a choice to declare their assets or to main- Swiss National Bank Zucman estimates held in a freeport) are not included in these tain secrecy but be charged a withhold- that about $140bn is held by UK house- estimates. It seems plausible to conclude ing tax of 35 per cent by the Swiss bank. holds in Switzerland.33 Recalling that Swit- that there are substantial amounts – at least Only 20 per cent of assets are voluntarily zerland holds about one third of all offshore in the order of magnitude of many tens of declared.34 It is not known how much of financial assets ($2.3tn of the total $7.6tn), billions – of offshore wealth held or enjoyed the UK’s offshore wealth is declared but it seems feasible that significant amounts by UK households. it is fair to say that some of it will have might be held by UK households in other Some of this wealth, and the passive been the product of past tax evasion offshore jurisdictions. Further, these are just income it earns, will have been declared to and avoidance.

‘ONSHORE’ TAX to HMRC under the disclosure of tax Some of these schemes are successfully AVOIDANCE avoidance schemes (DOTAS) regime. challenged in the courts. Others succeed, Of course, aggressive tax avoidance need HMRC then issue the scheme with a at least until parliament then acts to close not take place geographically offshore. scheme reference number (SRN). The the loophole which has been exploited by For example, promoters of tax avoidance taxpayers who use such schemes must the promoter. Through the establishment vehicles such as the “Working Wheels” then declare the SRN on their tax return. of the general anti avoidance rule, and the scheme used by the DJ Chris Moyles Promoters (in practice, promoters are change in attitudes towards tax which has set up highly contrived arrangements accountants, solicitors, banks and small occurred since the financial crisis, these designed to create artificial losses which firms called ‘tax boutiques’) are required to schemes have been declining in number. can be offset against other income in disclose the existence of a scheme if it fits However, as with offshore wealth, some order to reduce one’s tax bill.35 certain ‘hallmarks’ such as confidentiality, of today’s onshore wealth which has been The promoters of such schemes premium fees, and schemes involving cycled through these schemes will have are required to report their existence leasing and losses. been under-taxed.

13 / A unique contribution because property owners, out of vanity, overstated the value of their assets!”37 This 3. WEALTH TAXES is not predicted to be the challenge any modern day wealth tax will face.

Annual wealth taxes can work well but have problems… he main reason to tax wealth is to purchase newspapers, and use them to The history of modern annual wealth taxes Traise revenue. It is an attractive option campaign for pet causes such as with- is mixed. First and foremost, they exist and because the sums are so vast, and its dis- drawal from the European Union. It is work well in several countries including tribution so unequal. There are also other in this type of environment in which the Norway, some cantons in Switzerland, reasons to tax wealth: rules of the game can be influenced to France, and Spain. Also the Netherlands favour the wealthy elite. has a capital income tax, described in more • Equality. Wealth is far more unequally detail later in this report, which has some distributed than income. If you favour similarities to an annual tax on net wealth. greater equality of outcome you need to We should aspire to The variety of problems that opponents influence the distribution of wealth, not lessen taxes on earned speculate about – evasion, emigration, and only income. (As wealthy parents also income wherever possible, the difficulties of valuing rarely traded as- do much to purchase a head start in life sets – have been overcome in other econo- for their children, you should be inter- particularly compared mies. For example, the French Impôt de ested in the distribution of wealth even to passive income which solidarité sur la fortune (ISF) raises around if you only favour equality of opportu- arises to due to luck or €4bn per annum.38 nity, as that is intimately entwined with inheritance Nevertheless, many countries which intergenerational equality of outcome.) had wealth taxes abandoned them in recent years: Austria abandoned its tax in • Power. Wealth also brings with it a cer- • Merit and incentives. Most people 1994, Denmark and Germany in 1997, Fin- tain power. At its most innocuous this work hard for their income and deserve land, Iceland, Luxembourg, and Sweden in is the power to walk away from jobs. to keep as much of it as is consistent 2007 and Spain in 2008 (Spain and Iceland The power that wealth brings can also with the need to build a decent society have since reintroduced their wealth taxes be desirable if it encourages or enables for all our citizens. We should aspire to for the purposes of budget consolidation). people to take entrepreneurial risks. Se- lessen taxes on earned income wher- Some of these moves are no doubt due rial entrepreneur Stelios Haji-Ioannou, ever possible, particularly compared to the ascent of centre-right political par- founder of EasyJet, was already rich to passive income which arises to due ties in those countries. However, other through his inheritance of a Greek ship- to luck or inheritance. Other things reasons are common to all annual wealth ping fortune. However, of most concern being equal, a tax on the stock of pas- taxes. First, despite the extreme inequality is the power great wealth confers to sive wealth is preferable to a tax on the of wealth, yields have always been low. shape the public realm. British citizens income of the industrious and, further- For instance, those countries currently cannot be truly equal if, for example, a more, there should be fewer effects on using wealth taxes raise only a relatively Russian banker resident in the UK who work incentives. small amount of their revenue from them: is married to a former Russian minister France 0.6 per cent, Spain 0.36 per cent, can purchase at auction the chance to The need to raise revenues, and a de- Netherlands 1.59 per cent and Italy 1.45 play tennis with the prime minister and sire to curtail the power of the ultra-rich, per cent.39 This is also true of those coun- the mayor of London.36 This, of course, is has led to a long history of governments tries which abandoned their wealth taxes: a crude example. More important is the implementing wealth taxes. In a review of revenue from the Swedish wealth tax typi- ‘agenda setting’ power of the wealthy. ‘The Capital Levy in Theory and Practice’, cally varied from 0.5 to 1 per cent of total This can be subtle, as in the campaign to Barry Eichengreen notes that “the ancient state tax revenue from the early 1970s until reduce inheritance tax, or it can be obvi- Greeks used periodic capital taxes at rates 2006.40 Large personal allowances and ous – such as when rich men, like the varying from 1 to 4 per cent. It is said that exemptions of many types of assets com- Barclay Brothers or Richard Desmond, these levies were phenomenally successful bine with low annual rates to produce low

14 / A unique contribution yields. Moreover, as the period of time that individuals to emigrate. When justifying the in 2010, an increase of 28 per cent on the the tax has been in existence lengthens, cut to the 50p tax rate in 2012, HMRC pub- previous year. It did not note that Swiss political pressure tends to result in more lished ‘The Exchequer effect of the 50 per cantons too have an annual wealth taxes, assets being exempted and yields reducing cent additional rate of income tax’.43 It cited with the rate charged by each canton vary- still further.41 a survey carried out for the Skandia life as- ing from 0.2 per cent to 8 per cent.45 With ongoing, annual taxes there is al- surance company, in which “55.9 per cent of It is for these reasons, and those dis- ways a temptation to engage in avoidance. high net worth individuals would consider cussed below, that the Labour party before Where certain assets (say, antiques, as in moving abroad under certain circumstanc- the 2015 election proposed a form of wealth France) are exempt then one avoidance es. High taxation was the most frequently taxation – on assets which couldn’t physi- method could be to load up on debt to buy cited reason for considering leaving the UK cally move and whose value could easily exempt assets; thus reducing assessed net with 31 per cent of respondents.” However, be calculated – the so-called mansion tax. wealth. Obviously, there is also a risk that this was policy-based evidence making This was actually carefully designed, but an annual wealth tax would lead to greater based upon a highly selective reading of was perceived by some to be unpopular. offshore tax evasion and avoidance. This is the data. While 31 per cent cited high taxa- It was an annual levy on residential prop- one of the reasons why Piketty proposes tion as a motive to considering moving, 20 erty worth over £2 million. The original £2 an annual wealth tax only in the context of per cent cited a better standard of living in million threshold would rise in line with international co-ordination.42 the destination country and 14.6 per cent house price inflation at the upper end of An annual wealth tax in the UK, because cited the weather. Indeed, two of the top the housing market rather than general of its ongoing nature, would in theory be three possible emigration destinations are consumer price inflation– so that owners more likely to encourage the emigration France and Spain – countries with wealth of lower value homes wouldn’t be dragged of the very wealthy. However, this effect is taxes and relatively high income tax rates.44 into the threshold by soaring house probably overstated as there are many rea- The HMRC paper also cited evidence that prices.46 Labour also stated there would be sons for moving to and from the UK. There 383 British citizens working in banking and protection for cash-poor but equity-rich is little data on the propensity of wealthy financial services moved to Switzerland owners – allowing them the option to pay © Ken Teegardin

15 / A unique contribution the charge from their estate when they die. wealth taxes on growth in a variety of Eu- The DIW Berlin proposal analysed Despite these safeguards the tax was still ropean countries and finds that a 1 per cent the tax rates needed to raise a target of regarded as a problem by about one in five increase in wealth tax does indeed reduce €100bn through a one-off tax on very voters in London who may have worried growth – but by a very small amount – be- wealthy Germans: – in most cases wrongly – that their family tween 0.02 and 0.04 percentage points.52 home, which was a long way from being Of course, other studies find that small “Since net wealth is strongly concentrated a ‘mansion’, might get caught in the net increases in other taxes, including income at the top of the distribution, a capital in future.47 tax53, corporation tax54, and VAT55 all also levy could raise substantial revenue even adversely affect growth, typically by small if relatively high personal allowances are … it is the macro-economic effects amounts over time limited periods. This is granted, thus restricting the number of of annual wealth taxes that should because many models assume that long- affected people to a very small share of all attract most attention term GDP growth is driven not by tax taxpayers. Assuming a personal allowance Any annual wealth levy taxes not only in- reform but by supply-side factors (techno- of €250,000, we estimate a tax base of herited wealth but also wealth represent- logical progress, working age population €2,950bn, amounting to 118 per cent of ing the individual’s accumulated savings. growth, labour force participation rates and GDP in 2010. A capital levy raising tax Taxing the stock of accumulated savings growth in the capital stock). revenue of €100bn, or 4 per cent of GDP, is closely related to taxing the returns to would thus require a tax rate of 3.4 per savings (for instance, if you earn £2 inter- Any annual wealth cent. We also analyse alternative sce- est per annum from savings of £100, then levy taxes not only narios of a capital levy yielding the same a 1 per cent annual wealth tax would raise tax revenue with a narrower tax base and £1, similar to a 50 per cent tax on savings inherited wealth but a correspondingly higher tax rate. In the interest.) Savings taxes affect both the also wealth representing case of a personal allowance of €1 million, total amount of savings in the economy the individual’s which would confine the capital levy to the and, probably more importantly, how accumulated savings richest 0.6 per cent of the population, the those savings are allocated across different required tax rate would be 5.4 per cent.” assets. This can directly affect the amount of capital invested and how efficiently To summarise, while establishing an Much wealth in Germany is held in it is invested.48 Similar concerns within annual wealth tax is perfectly feasible, in family-run businesses. Therefore the paper HM Treasury and the Labour party led to practice they have not raised huge sums explores different options including pro- the abandonment of plans for an annual and the ongoing nature of annual taxes viding exemptions and reliefs for such busi- wealth tax in the 1974–79 government.49 might lead to several undesirable distor- nesses, together with personal allowances However, this effect on domestic savings tionary effects such as increased avoidance, including child allowances. The authors might be lower in a globalised world emigration, or a reduction in investment also allow for payment to be spread over where foreign investment can be attracted. or entrepreneurial risk taking. While these 10 years. These measures reduce problems Others argue that wealth taxes reduce risk have been generally overstated it is these caused by liquidity constraints. They find taking, through lowering the net return. long-term distortionary effects that a one- that it is possible to raise €100bn through Conversely, others believe that a wealth off wealth tax, as long as it is genuinely a tax design that includes a personal al- tax might encourage investment in human believed to be unique, largely avoids. lowance of €1 million. In this scenario they capital and thereby positively affect eco- estimate a tax base of €1,864bn (75 per nomic growth.50 Others state that wealth The most developed analyses of cent of GDP) owned by 414,000 taxpayers taxes might mean that the tax burden a one-off wealth tax can be found – 0.6 per cent of the adult population. The on labour income could be eased, which in Germany extreme inequality of wealth means that might be particularly important as tech- Economists at the prestigious German the top 0.1 per cent wealthiest individuals nological change means that more returns Institute for Economic Research (DIW account for 83 per cent of that tax base. might accrue to the owners of capital than Berlin), latterly commissioned by the Finally, they include estimates of ad- those reliant on labour income.51 Friedrich-Ebert-Stiftung, have analysed ministration costs using data from inher- The effect of annual wealth taxes on the distributional and revenue raising po- itance and gift taxation. The higher the growth have been tested empirically by tential for both one-off and annual wealth personal allowance, the lower the admin- Åsa Hansson, who examines the effect of taxes in Germany.56 istration costs. A lower personal allowance

16 / A unique contribution of €250,000 results in more taxpayers and by the economist Arthur Cecil Pigou, in In power, Labour has introduced two ad increased administration costs of about 5 his book A Capital Levy and a Levy on War hoc levies, on capital income but structured per cent of tax revenue. A higher personal Wealth in 1920.64 so as to be not too dissimilar to a wealth allowance of €1 million reduces admin- As public debt soared again during the tax. The first was Stafford Cripps’ 1948 ‘spe- istration costs to less than 1 per cent of second world war interest in one-off levies cial contribution’, and the second was the revenue.57 increased. There was a one-off levy imple- ‘special charge’ introduced by Roy Jenkins Similar proposals have been analysed by mented in post-war Germany: the so-called in 1968. The special contribution was an ad researchers from the German central bank, Lastenausgleich. J.M. Keynes published his hoc levy on investment income over £250, Deutsche Bundesbank.58 The Bundesbank 1940 pamphlet, entitled How to Pay for the so long as the individual had a total income researchers who modelled a one-off wealth War, and included an idea for a capital levy of over £2,000; while the special charge tax found that an annual wealth tax, in the suggested by an earlier reviewer – Friedrich was a one-off retrospective tax on invest- long run, leads to lower growth and higher vion Hayek. However, each made the ment income in one year (1967–68). Roy unemployment. However, they found proposal for different reasons. Keynes saw Jenkins had always favoured some sort of that a one-off tax raises significant sums the one-off levy as necessary to retain the one-off wealth tax – his maiden speech in (€100bn) while causing few distortions support of the Labour movement for his parliament had been in favour of the 1948 which might hinder growth.59 plan for compulsory savings, to be released special contribution and in 1951 he wrote a We should take the opportunity to learn after the war ended in order to counter the Tribune pamphlet arguing for a capital levy. from these German analyses and begin to predicted slump. The levy would pay for When chancellor, he structured the special seriously consider proposals for a unique the payments to all the workers who had charge so that any investment income contribution – a one-off levy on passive deferred their income. Hayek meanwhile below a £3,000 threshold was exempt, but wealth in the UK. proposed the levy be used for the purposes subsequent tranches were taxed at a steep- of popular capitalism – to convert the work- ly progressive scale: 10 per cent between Both the left and right have proposed ers’ deferred pay into equity stakes in the £3–4,000, 15 per cent between £4–5,000, 30 one-off wealth taxes in the UK ‘industrial capital of the country’ – through per cent between £5–8,000 and at 45 per Proposals for one-off wealth taxes, or a trust fund or ‘giant holding company’.65 cent above £8,000.66 capital levies, have a long pedigree in Britain and have originated from all sec- tions of the political spectrum.60 David Ricardo suggested a one-off capital levy to pay off public debt incurred during the Napoleonic wars.61 In the period follow- ing the first world war public debt had again risen to problematic levels: interest payments as a share of budgetary receipts rose from less than 10 per cent in 1913–14 to 22 per cent in 1919–20.62 Proposals for a capital levy were made by Sidney Webb, in a 1919 pamphlet for the Fabian Society which proposed a one-off levy on capital.63 By 1920 a levy imposed solely on the additional wealth accumulated during the war had become part of the Labour party’s official policy platform. The ruling Liberal Conservative govern- ment appointed a Parliamentary Select Committee on Increase of Wealth (War) which in 1920 submitted a plan for a levy, to be applied to the 1914–19 increment in property values. This plan was supported

17 / A unique contribution For the majority of taxpayers, who have not used offshore financial services or tax 4. PROPOSAL FOR A ONE-OFF avoidance vehicles valuation of wealth will not be difficult: their financial wealth will LEVY ON PASSIVE WEALTH be calculated by HMRC on their behalf (see paragraph 7b)) and they can value their main property. If they wish, however, all taxpayers can choose the full valua- tion exercise which high-risk taxpayers he rest of this chapter sets out a pro- So, for example, the personal chargeable must undergo. Tposal for a one-off levy on passive (net) wealth allowance could be £10 million. wealth. The levy is designed to take into ac- The higher rate chargeable wealth thresh- count previous high risk behaviour, such as old could be £20 million. The lower rate of, use of tax havens. The proposal borrows the say, 1 per cent would therefore be charged Meaning of “long-term resident” language of the 1948 special contribution, on chargeable wealth between £10 mil- terming the levy a ‘unique contribution’ – to lion and £20 million, and the higher rate 5. A long-term resident is anyone resident emphasise that it is indeed a one-off tax. of, say, 2 per cent would be applied to in the UK on the date by reference to The basic structure of the tax is set out chargeable wealth above the £20 million which the tax is charged (the charging below – which uses terms accessible to threshold. date) who those familiar with British tax law. Where a) has been resident in the UK during appropriate, grey text in italics gives addi- at least four of the seven tax years tional commentary which explains key fea- 3. A key feature of the tax is certain ex- preceding the year in which the tures of the unique contribution in simpler clusions which are referable to trading charging date falls or, language, or using examples. or employment activity. It is by reason b) is unable to demonstrate that their of those exclusions that the tax is de- residence in the UK is temporary by Description of structure of scribed as a tax on ‘passive’ wealth. reference to (i) a projected departure one-off levy date within four years of their date This disregard of employment and trading of arrival and (ii) the absence of Introduction income is applicable whichever computa- long-term employment, business, tion method is used. See paragraphs 7c) property or family interests. 1. The one-off tax on unearned wealth will and 14a). be charged on all long-term residents 6. Long-term residents who are not of the UK. The amount of the charge high-risk taxpayers pay the tax in will be a percentage (the lower rate) of 4. Another key feature of the tax is that relation to their deemed chargeable each long-term resident’s chargeable long-term residents who are not wealth. wealth, to the extent that the long- high-risk taxpayers will be permitted term resident’s chargeable wealth to elect to be taxed by reference to a This is a new category which brings in exceeds a specified threshold (the streamlined computation mechanism potential taxpayers much quicker than the personal chargeable wealth allow- which derives a deemed chargeable non-dom rules. ance). A higher rate will be charged to wealth figure from easily collected the extent that the long-term resident’s information. High-risk taxpayers are chargeable wealth exceeds a higher (broadly speaking) those who use or rate chargeable wealth threshold. have used either aggressive tax avoid- Meaning of “deemed chargeable wealth” ance or offshore financial services. In 2. The ‘personal chargeable wealth allow- the case of long-term residents who 7. Deemed chargeable wealth comprises ance’ will be £[X], the ‘lower rate’ will are high-risk taxpayers, the chargeable untenanted property, deemed in- be [A]%, the ‘higher rate chargeable wealth figure derives from a thorough vestment wealth, cash-valued assets wealth threshold’ will be £[Y], and the assessment of the taxpayer’s actual and private pension fund wealth, higher rate will be [B]%. holdings of assets. minus deductible liabilities.

18 / A unique contribution A key feature of this levy is the exclusion est amount of annual unearned This would be taken into account under of most wealth that does not generate income over the course of the four paragraph 7a). a declarable income. This is due to the years of the taxpayer’s UK residence selection of declarable unearned income prior to the charging date (inflation- as a method of easily imputing financial indexed to the charging date) as d) ‘Cash-valued assets’ means ster- wealth. So, for example, art, jewellery representing the product of an ling cash, amounts in sterling- and personalised number plates would assumed average annual rate of denominated bank accounts, and be excluded from both the calculation return of [Z]% on investment assets holdings of UK government debt. It of chargeable wealth and deemed across all classes. also includes any asset subject to a chargeable wealth. cash valuation rather than inclusion Examples of unearned income that would within deemed investment wealth be included within the deemed investment upon a claim to have it so treated by a) ‘Untenanted property’ means real wealth calculation include: the taxpayer. property, and high-value chattels • Rents from a buy-to-let empire; for which a leasing market exists eg • Dividends; It is available to a taxpayer to make a boats, insofar as such real property • Income from a UK based trust fund. claim for an asset to be valued rather or chattels are not continuously let than having its value estimated on at an arm’s length rent. A person’s Say the assumed average annual the basis of the income it generates, to deemed chargeable wealth includes rate of return was 5 per cent. Unearned avoid a harsh outcome in circumstances the market value (as at the charging income of, say, £1m per annum would be where, for example, an asset yielded date) of all such property where (i) divided by 5 per cent to infer a capital sum disproportionately high income in a the property belongs beneficially to of £20m. single year. that person (whether or not jointly with any other person or persons), or (ii) that person has continuous c) ‘Unearned income’ means all taxa- e) ‘Private pension fund wealth’ means use of it, where such use arises by ble income, or income which would the market value (as at the charging virtue of any property right held by be taxable but for relief in respect date) of any assets held for the pur- that person or by any other person or of foreign tax, with the following poses of the taxpayer’s rights under persons, except to the extent a rent subtractions: any registered pension scheme or is paid for such use. Where multiple i) income from employment, qualifying overseas pension scheme. long-term UK residents have the ii) trading income, value of such property falling to be iii) income from real property which This figure can be obtained easily from included in their chargeable wealth is not continuously let at an pension schemes. by virtue of the foregoing, the value arm’s length rent, and will be deemed to be included in iv) income from cash-valued assets the chargeable wealth of the person f) ‘Deductible liabilities’ means any whose chargeable wealth is greatest, This income should have been declared debt owed by the taxpayer on the and excluded from the chargeable to the HMRC and is therefore easily charging date, or any other liability wealth of any other person. obtainable. where the net present value of the The effect of disregarding trading liability as at the charging date can A typical ‘untenanted real property’ would and employment income is to lessen the reasonably be computed, to the ex- be the main family residence. inferred capital sum. tent such debt or other liability was Property held in a trust would be Trading income is only earned income incurred on arm’s length terms, and covered by paragraph 7a)ii. if the taxpayer his- or herself is trading, excluding debt where the interest is dividends are unearned income. deductible against income used for Real property which is not continuously the purposes of a deemed invest- b) ‘Deemed investment wealth’ means let at an arm’s length rent might be, ment wealth computation. Deduct- a deemed amount of capital wealth for example, a holiday home which is ible liabilities which are jointly owed derived from treating the high- sometimes let as holiday accommodation. shall be subject to apportionment.

19 / A unique contribution The levy is charged on net chargeable tion or purposive interpretation of the calculation of their deemed chargeable wealth so, for example, a mansion worth the relevant legislation be adopted, wealth. £20m with a mortgage of £5m remaining or jurisprudence negativing the fis- has that £5m debt deducted from the total cal efficacy of circular transactions chargeable wealth. or transactions containing inserted 10. ‘High-risk taxpayer’ also includes any steps with no commercial purpose) taxpayer who pays tax on the remit- irrespective of whether such ar- tance basis. 8. It is by means of the foregoing method rangement was subsequently found that taxpayers who are not high-risk to succeed, or was subsequently This includes the small number of very taxpayers may elect to compute their found to fail on some other basis, wealthy non doms who elect to pay the an- chargeable wealth. For most taxpay- or who has who has during year in nual flat rate fee known as the Remittance ers in this category, the only valuation which the charging date falls or dur- Basis Charge. For example, in 2012 nearly exercise will be the valuation of any ing the twenty tax years preceding 5,000 of the 123,000 non doms chose to untenanted real property (ie generally- that year: pay the Remittance Basis Charge rather speaking, residential property for family c) transferred assets into a bank ac- than pay UK tax on their global income use). Procuring such valuations should count in any secrecy jurisdiction, and gains.67 not be burdensome. d) transferred assets otherwise than on arm’s length terms to any company, In the unlikely event that a taxpayer has trust, foundation or other asset- 11. Some of the foregoing indicators re- recently liquidated and spent most of their holding structure where any of the quire taxpayers to assess themselves to financial wealth, then they can voluntarily entities or arrangements in that be ‘high risk’ since the relevant infor- choose to be assessed to have a full valua- structure is constituted by the laws mation will not in those instances be tion of their wealth, using the same meth- of any secrecy jurisdiction or has a available to HMRC, and some will in ods that high risk taxpayers must undergo, bank account in any secrecy juris- practice require the taxpayer’s advisers see below. diction, or procured such a transfer (or the taxpayer’s employer’s advisers) into such bank account or to such to notify taxpayers that they are ‘high entity or arrangement (which shall risk’. Provision will therefore have to include such transfer being made be made to (i) penalise advisers who do Meaning of ‘high-risk taxpayer’ in connection with an employment not notify relevant taxpayers that they relationship). are ‘high risk’, and (ii) penalise high- 9. ‘High-risk taxpayer’ means a tax- risk taxpayers who do not notify their payer who has during year in which the Under the DOTAS regime promoters are status to HMRC. charging date falls or during the seven obliged to register schemes if they have tax years preceding that year: certain ‘hallmarks’ such as confidentiality 12. The chargeable wealth of high-risk a) made use of a scheme disclosable and schemes involving leasing and losses. taxpayers (and other taxpayers who under the Disclosure of Tax Avoid- Paragraph 9b) is intended to capture do not elect to be taxed in accordance ance Schemes (DOTAS) regime, or “bespoke” tax avoidance in addition to the with their deemed chargeable wealth) b) entered into any arrangement ‘off the shelf’ schemes caught through the is computed in accordance with the designed to reduce or defer tax or DOTAS regime. following. otherwise obtain a tax advantage, How the UK and other states may where such arrangement (i) relied define secrecy jurisdictions is discussed The onus is on the taxpayer or adviser to de- on a professional opinion as to its elsewhere in this paper. clare their previous use of offshore finance. efficacy, and (ii) that opinion ad- In paragraph 9d) for an offshore trust, The increased use of automatic information dressed or ought to have addressed for example, it is the settlor of the trust exchange between tax jurisdictions (and oc- the risk of the arrangement being who is the high-risk taxpayer, rather than, casional leaks of data from tax havens such found to fail on the basis of anti- necessarily, the beneficiary. If beneficiaries as the Panama Papers) make continued avoidance legislation or jurispru- (who are not also high risk) are using prop- obfuscation an unwise strategy. dence (ie jurisprudence requiring erty held in an offshore trust, or receiving that a realistic view of the transac- income from it, that will be included in

20 / A unique contribution Meaning of ‘chargeable wealth’ b) that person has continuous use of with the possibility that a single settlement it, where such use arises by virtue could have had multiple settlors – in those 13. Chargeable wealth is the aggregate of any property right held by that circumstances the assets in the settlement market value (as at the charging date) person or by any other person or need to be apportioned. of relevant assets which are attribut- persons; able to the taxpayer, less deductible c) it is held in any company, trust, liabilities as defined above. foundation or other asset-holding 17. Where an asset is attributable to more structure any kind to which the than one high-risk taxpayer, the value Here, rather than ‘deeming’ chargeable person has contributed assets, of that asset will be deemed to be in- wealth from unearned income the where there exists any expectation cluded in the chargeable wealth of the market value of the taxpayer’s net that the person or any person con- high-risk taxpayer whose chargeable chargeable wealth is calculated through a nected to that person might receive wealth is greatest, and not included valuation exercise. any benefit from such structure, to in the chargeable wealth of any other the extent such asset is apportion- high-risk taxpayer. Further, relief will able to the person by reference to be given to the extent that any asset 14. ‘Relevant assets’ means any asset of respective contributions of assets to included in the chargeable wealth of a whatsoever kind which is capable of such structure by those who have high-risk taxpayer gives rise to taxable generating income (including real contributed to it; or deemed chargeable wealth on the part property, and high-value chattels for d) the person has received or has any of a low-risk taxpayer. which a leasing market exists eg boats expectation of receiving income whether or not such chattels are in fact from, the benefit of or continu- This paragraph is intended to avoid double being leased), except: ous use of that asset in the future, counting of assets. a) contracts of employment and assets where it is held in a company, trust, held for the purposes of a trade, and foundation or other asset-holding b) assets the value of which or income structure of any kind. 18. As with the initial identification of from which has already formed part high-risk taxpayers, the assessment of a deemed chargeable wealth 16. Further, where a person has received of their chargeable wealth will require computation. payments or other benefits from a com- their advisers to take a pro-active role, pany, trust, foundation or other asset- and serious penalties should apply in Assets which are not capable of generating holding structure of any kind (except cases of non-disclosure by either advi- passive income, such vintage furniture or to the extent referable to employment sors or taxpayers themselves. fine art, are excluded. The rationale is to by an entity or person in such structure keep the base of deemed chargeable wealth or participation in such structure qua and chargeable wealth equivalent. High asset-holder), and no asset is attribut- risk taxpayers are to be excluded from a able to the person to which such pay- simpler form of assessment not requiring ment or benefit is referable, adeemed substantial disclosure, rather than assessed asset will be attributed to that person, on a wider tax base. the value of which is to be computed by treating the greatest annual amount of such payments or the greatest annual 15. An asset is ‘attributable’ to a person if value of such benefit (inflation-indexed it belongs beneficially to that person to the charging date) over the course (whether or not jointly with any other of the four years prior to the charging person or persons). An asset is also at- date as representing the assumed tributable to a person if: average annual rate of return on the a) it is held for the purposes of that deemed asset. person’s rights under any registered pension scheme or qualifying over- Paragraph 15c) is largely focused on at-

seas pension scheme; tributing assets to the settlor, and dealing © Alan Reeve

21 / A unique contribution considerable. However, it is not uncom- mon for the amount of tax revenue raised 5. DISCUSSION or lost to be uncertain in any particular budget measure, or for estimates to change over time. For example, the annual tax on enveloped dwellings (ATED), a tax meas- ure designed to counter the avoidance he following discussion seeks to It seems unlikely that many British swing of stamp duty on sales of property held Taddress some of the questions that this voters would fear that they would be per- by offshore companies, raised five times proposal may provoke. sonally affected by a one-off tax on passive the initial estimate made by HRMC.71 wealth of over £10 million. They may, of Less happily, initial HMRC estimates of Should the levy be targeted at the top course, fear that the Labour party has set £5.1bn revenue (over 5 years) from the 1 per cent or 0.1 per cent? itself against ‘aspiration’, though again the 2011 UK-Swiss tax deal were vastly over- One of the criticisms of the ‘mansion tax’ fact the unique contribution is a one-off optimistic.72 We should not let uncertainty was that the £2 million threshold is so should be reassuring. over the precise amounts which might by low that it captures properties that are not raised prevent action when we know the ‘mansions’ at all, but the normal dwellings How much might the levy raise? results could be significant. of the middle class who happen to live in Her Majesty’s Revenue and Customs affluent areas. Should a one-off wealth tax (HMRC) hold some data which might be Why would people who have been be targeted at the top 10 per cent or top useful in making this calculation. For ex- involved in dodging their taxes 1 per cent, or even higher? What do these ample, the UK Transfer of Assets Abroad reveal their hidden wealth? percentages mean in practice? rules are designed to require declarations Some dedicated tax evaders – who have To be in the top 10 per cent of wealthy and consequent payment of tax due in ignored many previous favourable amnesty households in the UK one must have assets situations where a UK resident transfers deals – will no doubt remain on the wrong worth about £1 million.68 Therefore, a focus assets to an offshore location in order to re- side of the law and their offshore wealth on the top 10 per cent would encounter duce their UK income tax liability. Between will remain out of sight. (However, their some of the same political problems as the 9,000 to 13,000 individuals are affected visible wealth can still be taxed, of course.) mansion tax and is therefore not recom- by the rules each year – around 2,000 of There is an incentive to declare their mended. whom are additional rate taxpayers (and past tax avoidance. Individual taxpayers or A household must have assets of just around 1,400 of whom earn over £250,000 their advisers must assess themselves or under £2.9 million to be in the top 1 per gross per annum).70 Also HMRC should be their clients to be ‘high risk’ – for example cent. However, the German wealth tax pro- able to make an estimate of the amount of that they have transferred assets to a bank posal analysed by DIW Berlin found that deemed investment wealth, by examining account in a secrecy jurisdiction. Choosing the extreme inequality of wealth meant that data on declared capital income, and Land not to identify themselves as high risk could the top 0.1 per cent wealthiest individuals Registry data could be used to value UK carry serious penalties, perhaps including accounted for 83 per cent of the German tax property wealth. custodial sentences in egregious cases. base. Not much is known about inequality However, the total tax base is difficult to Moreover, the noose around the neck of between the UK’s top 1 per cent and the estimate. As mentioned earlier, good qual- tax evaders has tightened somewhat over top 0.1 per cent (and therefore nor is the ity household survey data for the very rich recent years. There have been a succes- true threshold for being in the top 0.1 per is absent, and tax data is largely derived sion of announcements between the UK cent known) but analysis which combines from inheritance tax data, a tax which is and various other jurisdictions, including survey data with ‘rich list’ data implies that frequently avoided by the wealthy. Con- tax havens, which allow for automatic inequality of wealth at this very high level is sidered alongside the large sums held off- information exchange between HMRC also skewed in the UK.69 shore the wealth of the very rich is largely and other authorities. Before these agree- The evidence from Germany suggests terra incognita for the UK authorities. The ments, exchange of information, where that it might be possible to raise significant levying of the tax will itself be an exercise agreements existed, was on an ‘on request’ sums even with a high personal allowance in mapmaking. basis: information is only passed over after of, say, £10 million. Setting of the threshold In short, therefore, we do not know, a clear request is made, specifying the tax- is, in the final analysis, a political judgment. although we suspect the sums could be payer concerned and various other bits of

22 / A unique contribution information about him or her. In essence, who also have low levels of income, then such as progressivity – which should be you have to already know what you are provision could be made to allow the tax given greater weight than that of avoiding looking for before you ask for it.73 to be paid over three years, or to allow a double taxation. Now, the devil is in the detail: some charge to be attached to a property. How- of the multi-lateral announcements of ever, this should be considered carefully as, How would HMRC calculate an automatic information exchange will with a high personal allowance of £10 mil- assumed average rate of return? allow for the exchange of both banking lion, these cases will be vanishingly rare. One special feature of the unique contri- information and beneficial ownership bution is the use of a streamlined wealth details – ie who really owns, controls or There are other calculation method for low-risk taxpayers. enjoys the fruits of a particular company, principles in taxation This involves assuming declared unearned trust or asset. Some deals might be income to be the product of investment less useful. But such arrangements are – such as progressivity wealth, using a fixed assumed average rate becoming more common, and more – which should be given of return. Say, for example, the assumed jurisdictions, including certain tax havens, greater weight than that of rate of return was 5 per cent. Therefore un- are participating. Further, as a succession avoiding double taxation earned income of say £1 million per annum of leaks (‘Offshore leaks’, ‘Swiss leaks’, and from rents from a buy-to-let empire or the ‘Panama Papers’) have shown, total dividends would be used to infer a capital secrecy can no longer be assured. Would a wealth tax be taxing the sum of £20 million. Someone who wishes not to declare same income twice? This use of an assumed average rate of themselves high risk is in effect saying that Double taxation is a common objection to a return is not dissimilar to a special provi- they are 100 per cent confident that their wealth tax: some of the wealth that would sion used in the Netherlands.77 The Dutch past tax-avoiding over the previous 20 years be subject to the tax would indeed have Box 3 system taxes income from savings left no trace that can be discovered by future been accumulated from post-tax income.75 and investments in a special way. Actual information exchange or a leak over the next However, some would not be (for example, rates of return from financial wealth – such 20 years. Those who might have a modicum certain assets – in particular someone’s as interest and dividends – are not relevant. of doubt might consider coming clean and main home – can gain in value and the Instead taxpayers’ net wealth held in the registering themselves as ‘high risk’. capital gain remains untaxed). Former form of savings and investment is calcu- member of the Bank of England Monetary lated. The return on this wealth is assumed What about the little old lady who is Policy Committee, economist Martin Weale to be 4 per cent. This 4 per cent notional in- asset rich, income poor? notes that much of the increase in wealth come is taxed at a rate of 30 per cent. Thus, A criticism of the mansion tax plans was over the last decades “has its origins in effectively, 1.2 per cent of the taxpayer’s net that the proverbial little old lady who asset revaluations rather than resulting wealth is taxed annually.78 may live in property which is valued at from past saving. In that sense taxes on But what should the rate of return be? The over the £2 million threshold may not wealth and on inheritance are not double super-rich can almost certainly earn higher have sufficient income to pay the annual taxation.”76 Finally, some of the wealth rates of return. We have already noted how charge. This criticism is overblown. ONS taxed through the unique contribution the average real rate of return (after inflation data reveal that only 1 per cent of UK will have been ‘undertaxed’, particularly and all administrative costs and fees) from households in the bottom 40 per cent of if the taxpayer has used offshore financial 1980 to 2010 varied from 10.2 per cent to the income distribution have property services or domestic tax avoidance vehicles. 6.2 per cent for US college endowment wealth worth over £500,000.74 Moreover The ‘problem’ of double taxation is en- funds, depending upon the size of their there were plans to allow the mansion demic in our tax system and the distribu- capital sum. This principle is also recognised tax to be paid through a charge on your tional effect is proportionately greater for in proposed reforms to the Dutch Box 3 property, to be repaid once sold or on the those on low and middle incomes. Most system – in which the fixed yield will be death of the occupant, thereby allowing money raised through indirect taxes (such reduced to 2.9 per cent for amounts up to the elderly to remain in their own homes. as VAT and tobacco duties) is also from € 100,000 but increased to 4.7 per cent for Similarly, if there are particular cases of individual’s post-tax income – and these amounts between €100,000 and €1,000,000 individuals who have over, say, £10 million are regressive taxes on which the poor and 5.5 per cent for sums over € 1,000,000.79 in assets – for example untenanted real pay proportionately more of their income. This would be a matter for detailed analysis property such as a main residence – but There are other principles in taxation – by HM Treasury. However, it seems likely

23 / A unique contribution that UK assumed rates of return for those wealth. Nevertheless, there are elements taxes. This was explained by the European with net wealth over £10 million, should be of retrospectivity in this proposal: in par- Court of Human Rights in National and 5 per cent or higher. ticular the use of past behaviour (use of tax Provincial Building Society and Others v havens and DOTAS registered tax avoid- UK (1997) in the following terms: Is valuation of the assets of high risk ance schemes) to ascertain liability for the taxpayers too difficult or intrusive? unique contribution. “According to the Court’s well-estab- The process is necessarily intrusive, which Retroactive legislation is rightly lished case-law … an interference, in- is why it is restricted only to high-risk frowned upon: however, it is not neces- cluding one resulting from a measure to taxpayers. However, the nature and level sarily unlawful. While it is true that Article secure the payment of taxes, must strike of intrusion will not be in a different cat- 7 of the European Convention on Human a “fair balance” between the demands of egory to that experienced by lower income Rights (ECHR) forbids retroactive criminal the general interest of the community families in receipt of social security benefits law, taxes are not part of criminal law. 82 In- and the requirements of the protection whose family, health, income, wealth and deed, there have been several examples of of the individual’s fundamental rights. work situations are investigated regularly. taxes with retrospective effect. In 1981 the The concern to achieve this balance is It is sometimes said that a wealth tax is Conservative government levied a one-off reflected in the structure of Article 1 as a too difficult to implement because of the windfall tax of 2.5 per cent on banks’ non- whole, including the second paragraph: difficulty of valuing rarely traded assets.80 interest bearing current account deposits, there must therefore be a reasonable The unique contribution proposal outlined raising £400 million. In 1991 the Conserva- relationship of proportionality between in this report however, only focuses on tive government introduced (with retro- the means employed and the aims assets capable of producing an income, spective effect) regulations affecting the tax pursued. Furthermore, in determining therefore exempting family heirlooms such on interest paid by building societies. The whether this requirement has been met, as jewellery and art, for instance. In the UK Labour government’s retroactive windfall it is recognised that a Contracting State, professional valuers are well used to valu- tax on the utility companies in 1997 and not least when framing and implement- ing estates, including assets held overseas, 1998, raised £5.2bn. ing policies in the area of taxation, en- for the purpose of assessing liability for In the realm of personal taxation ret- joys a wide margin of appreciation and inheritance tax. rospective legislation is used reasonably the Court will respect the legislature’s We also need not worry about taxpayers frequently as an anti-avoidance measure. assessment in such matters unless it is quickly moving their assets into exempt This has been the case with partnerships devoid of reasonable foundation.” forms of wealth (such as art). The govern- dealing in commodity futures in 1978, bo- ment can announce the measure under a nuses in 2004, double taxation treaty abuse “In the area of taxation, retrospective constitutional convention known as the in 2008 and stamp duty land tax in 2012. legislation is used most often as an anti- ‘Rees rule’ which governs retrospective Court cases have tested these laws, avoidance measure by plugging a loophole. application of new tax rules. The conven- where claimants state that Article 1 of Such legislation does not automatically tion is that the government will announce, Protocol 1 to the ECHR has been infringed. infringe the European Convention, but it is usually through a parliamentary answer It is worth quoting in full the summary of certainly capable of challenge under Article or statement, the specific tax avoidance case law given by a standard law textbook, 1 of Protocol No 1 since it undermines the loophole which is intended to be closed. and repeated by the House of Com- rule of law and legal certainty. A claimant The relevant legislation, which might not mons library.83 would have to show that the legislation in be introduced until the next finance bill, is question was not objectively justifiable and then backdated to begin on the date of that “Article 1 of Protocol No 1 to the European was disproportionate.”84 announcement.81 In this case the measure Convention guarantees, in substance, the could be announced on the day of the right to property and, in effect, comprises If the government pursued the idea of a budget, or very shortly before. The date of three elements. The first contains the gen- one-off levy, the detailed proposal would the announcement can be used as the date eral principle of peaceful enjoyment of be expected to be robust to any challenge. of valuation of (taxable) relevant assets. property; the second deals with deprivation of property and subjects that to certain con- Will generating a list of secrecy Aren’t retroactive laws unlawful? ditions; the third recognises that contract- jurisdictions be problematic? The unique contribution is not a retroac- ing states are entitled to pass laws that they Following the Panama Papers the UK has tive tax – it is a tax on current, present-day deem necessary to secure the payment of joined others in calling for an interna-

24 / A unique contribution tional blacklist of tax havens.85 However, derpinning this list could therefore be ‘whitelist’) maintained by the EU state86 or governments are usually reluctant, for amended to reflect a wider understanding is defined by reference to a specific (lower) reasons of bilateral relations, to label of the common characteristics of secrecy percentage87 of domestic corporate tax – or other states as a ‘tax haven’. An early at- jurisdictions including: the current and a combination of the two.88 For instance, tempt by the Organisation for Economic historical pattern of the bilateral exchange Sweden effectively subjects the ‘tax haven’ Cooperation and Development (OECD) of information between the jurisdiction subsidiary’s profit to Swedish corporation listed several countries but intense pres- and the UK (whether automatic or only tax if the subsidiary’s profit is taxed at a sure from those states, and revised, more on request), the present and historical rate lower than 55 per cent of the Swed- lenient, listing rules, mean that currently existence of registries which reveal true ish rate. no countries are listed as uncooperative beneficial owners of entities (either to the However, care will have to be taken that tax havens by the OECD’s Committee on public or to law enforcement authorities), the inclusion of EU states within the list Fiscal Affairs. and present (and historical) zero or low of secrecy jurisdictions is compliant with However, it is possible to take unilateral tax rates for income, capital gains and/ European law. Although direct taxation is action. HM Treasury does in fact maintain or corporation tax. The emphasis on past not within the purview of the European a list of secrecy jurisdictions based upon characteristics is important. If a taxpayer Union in the same way as indirect taxes, their willingness and readiness to share settled funds in a secrecy jurisdiction for example, VAT, EU member states must data with HMRC, in order to set dif- which has recently cleaned up its act, nevertheless exercise their powers of direct ferential penalties for non-declaration of the taxpayer should still be regarded as taxation in a manner that is consistent with offshore income. Schedule 10 of the 2010 ‘high risk’. European law including the fundamental Finance Act empowers HM Treasury to freedoms: free movement of capital (Article classify territories in order to give higher The emphasis on past 63 of the Treaty of the Functioning of the financial penalties for tax evasion or avoid- characteristics is important. European Union); freedom of establish- ance where the scheme involves a secrecy ment (Article 49) and possibly the freedom jurisdiction: If a taxpayer settled funds in to provide cross border services (Article a secrecy jurisdiction which 56). Challenges at the European court of “In considering how to classify a terri- has recently cleaned up its Justice to the CFC rules have resulted in tory for the purposes of this paragraph, the act, the taxpayer should still reforms in the regimes operated by Ger- Treasury must have regard to: many,89 Portugal,90 Spain,91 and Denmark.92 be regarded as ‘high risk’ However, there are a range of established a) the existence of any arrangements justifications for restrictive tax measures – between the UK and that territory for The construction of such a list would such as the need to ensure effective fiscal the exchange of information for tax also need to be robust to withstand chal- supervision, the prevention of tax evasion, enforcement purposes, lenges that may occur from the inclusion the preservation of the cohesion of the of secrecy jurisdictions which are in the national tax system, and the balanced b) the quality of any such arrangements European Union, such as Luxembourg. allocation of taxing jurisdiction between (in particular, whether they provide for EU states do sometimes identify low tax member states. information to be exchanged automati- jurisdictions, for example to construct As long as the tax is well designed and cally or on request), and controlled foreign company (CFC) rules. proportionate it should be robust to any These rules, in a sense, define ‘tax havens’ challenge. After all, higher risk taxpayers c) the benefit that the UK would be likely in a way which the EU member state who were users of secrecy jurisdictions to obtain from receiving information deems compatible with European law. are neither paying a higher rate of tax nor from that territory, were such arrange- CFC rules seek to discourage the shifting paying that levy on a wider tax base. They ments to exist with it.” of income by a company to a (controlled) are merely excluded from one streamlined subsidiary in a low tax jurisdiction by tax- computation method. This is necessary The current ‘category three’ territories ing the parent company’s income as if it and proportionate because their use of the include known secrecy jurisdictions such included a proportionate share of the sub- offshore finance industry may make the as Panama. However, the category three sidiary’s income (at the domestic, higher) calculation of their true wealth inaccurate list doesn’t include tax havens such as tax rate. The low tax jurisdiction is either when imputing a capital sum from (poten- the Cayman Islands. The principles un- listed in a blacklist (or is absent from a tially under-declared) capital income.

25 / A unique contribution The unique contribution, by easing taxes on earned income and work, is also a small CONCLUSION step towards opening up a divide between Labour and the Conservatives around the treatment of unearned income. The current tax system is skewed in favour of unearned income. To take two re- he European social democratic mod- carefully designed to address inequal- cent prominent examples: national insur- Tel of marrying market dynamism with ity whilst going with the grain of people’s ance contributions aren’t paid on unearned regulation to curb abuses, and progressive instincts around fiscal rigour and fairness: income such as the £46,000 that David taxation to achieve greater equality and with a high threshold of £10 million, and a Cameron earned from renting out one of fund public services, is still very much alive. commitment to using the revenue to reduce his houses; and the £200,000 gift from his However, it needs defending. Centre-left the deficit, it sends a rather different signal mother will almost certainly be taxed less parties in post-crash Europe have to navi- than a perennial wealth tax with revenues heavily than the £140,000 salary he earns gate a narrow electoral path between the allocated towards, say, housing benefit. as prime minister. The merit of taxing the simplistic temptations of populism, and A one-off levy also avoids any potential proceeds of hard work and enterprise less the dangers of being seen as indistinguish- problems of emigration, avoidance, or in- heavily than unearned income is hard able from parties of the centre-right when vestment mis-allocation that opponents of to explain.93 faced with large public deficits. annual wealth taxes like to highlight. It is an This proposal (or others, such as the A one-off ‘unique contribution’ might easier political project than a permanent tax. idea of re-introducing an earned income help Labour and other social democratic discount into income tax)94 might be parties to navigate this path between pop- A one-off ‘unique politically useful. The Conservatives are ulism and conservatism: it is an authenti- contribution’ might help attempting to paint Labour as a party of cally left wing method of reducing deficits ‘skivers not strivers’. It might be possible to in an era of vast wealth inequality. Labour and other social turn that accusation back on to the Tories Nevertheless, presented in the wrong democratic parties to if Labour looks seriously at differentiating way, wealth taxes will worsen, not improve navigate this path between between earned and unearned income. Labour’s chances of winning future elec- populism and conservatism This is fruitful terrain. After all, the Labour tions. The unique contribution is therefore party is a party of work. © William Warby

26 / A unique contribution James Browne and Andrew Hood, IFS, 2016, p.27. Available at http://www.ifs. ENDNOTES org.uk/uploads/publications/comms/ R114.pdf

13. Green Budget 2016. Also see cumula- tive change in resource DEL, Slide 15, 1. Comparing a household at 99th able at: http://cdn.budgetresponsibil- Gemma Tetlow, George the Builder., percentile, with one at the 10th per- ity.org.uk/41298-OBR-accessible.pdf IFS, November 2015 Available at: centile. Chapter 7 Extended Analyses http://www.ifs.org.uk/uploads/pub- (Figure 7.7 and table 7.7), Wealth in 9. A Rainy Day Fund: Why Britain lications/budgets/Budgets%202015/ Great Britain 2012–14, Assets and needs a financial sector revenue Autumn/Tetlow_public_spending. Wealth Survey. Also see Danny Dor- stabilisation account, with Victoria pdf. Also see the outlook for the 2015 ling, What Everyone Needs to Know Barr, Fabian Society, 2012, available Spending Review, Rowena Crawford, About Wealth in the UK, New Left at: http://www.fabians.org.uk/wp- Carl Emmerson and Gemma Tetlow, Project, 11 September 2014. content/uploads/2012/12/A-Rainy- The Institute for Fiscal Studies, Octo- Day-Fund.pdf ber 2015. p.1. 2. Facundo Alvaredo, Anthony Atkinson & Salvatore Morelli, The Challenging of 10. I’m grateful to Dr Margit Schratzen- 14. The analogy was originally made Measuring UK Wealth Inequality in the staller-Altzinger, Deputy director of by Giles Wilkes, Bloodletting analo- 2000s, Fiscal Studies, vol 37, no 1, 2016. the Austrian Institute of Economic gies or Don’t get Levels and Rates Research, for this point. While some of Change confused, available at 3. Sunday Times Rich List 2016 p.28. on low and middle incomes will ben- https://freethinkecon.wordpress. ONS Wealth & Assets Survey Wave 4 efit from gilts through their private com/2014/06/13/bloodletting-analo- (2012–14), Fig 2.3. pensions, the (roughly) quarter of the gies-or-dont-get-levels-and-rates-of- UK population with no private pen- change-confused/ 4. Gabriel Zucman, The Hidden Wealth sion provision will not. See also Sandy of Nations, 2015 Brian Hager’s research on who owns 15. To get a sense of scale of the tax US public debt, for example: Public rises needed to avoid these cuts the 5. How public sector debt as a percent- Debt in an Unequal World, 2016, Government’s ‘tax ready reckoner’ age of GDP has grown over the last 10 available at: https://www.city.ac.uk/__ provides illustrative yields for a variety years, Office of National Statistics, 21 data/assets/pdf_file/0004/299974/ of measures. A one pence increase in August 2013, available at: http://www. CITYPERC-WPS-201601.pdf. How- the basic rate of income tax in 2016–17 ons.gov.uk/ons/rel/psa/public-sector- ever, a lot depends on other factors would yield £4.4 billion per annum, an finances/july-2013/sty-public-sector- including prices – this under-explored increase in the VAT rate of one pence debt.html area of economics is summarised would yield £5.4 billion, and a 1 per- briefly in Public Debt And Its Unequal- centage point increase in corporation 6. Public sector finances: March 2016, izing Effects, 2014 PhD thesis by Victor tax would yield £1.5 billion. Direct Office of National Statistics. Table 1.2 Amoureux supervised by Thomas effects of illustrative tax changes, Economic and Fiscal Outlook, Office Piketty, available at: http://piketty.pse. HMRC, December 2014, available of Budget Responsibility, 2016, p.14. ens.fr/files/Amoureux2014.pdf at https://www.gov.uk/government/ uploads/system/uploads/attach- 7. NHS Five Year Forward View, 23 11. Each year the basic state pension is ment_data/file/382129/20141203_Il- October 2014, available at: http:// uprated by the higher of the CPI in- lustrativechangesbulletin.pdf www.england.nhs.uk/wp-content/ flation measure, average earnings or uploads/2014/10/5yfv-web.pdf 2.5% – the so-called ‘triple lock’. 16. Wealth in Great Britain Wave 4, 2012– 14 Office of National Statistics, 2015. 8. Fiscal sustainability report, Office of 12. Living Standards, Poverty and Ine- Budget Responsibility, July 2014, avail- quality in the UK: 2015–16 to 2020–21,

27 / A unique contribution 17. Facundo Alvaredo, Anthony Atkinson 22. Wealth in Great Britain Wave 4, 29. Global Wealth 2015: Winning the & Salvatore Morelli, The Challenging 2012–14 Office of National Statistics, Global Wealth Game, BCG Partners, of Measuring UK Wealth Inequality 2015. Table 2.6d. 2015, available at: https://www.bcg- in the 2000s, Fiscal Studies, vol 37, no perspectives.com/content/articles/ 1, 2016. The debate over the extent of 23. Table 2.3 Wealth in Great Britain financial-institutions-growth-global- UK wealth inequality is also summa- 2012–14, Assets and Wealth Survey. wealth-2015-winning-the-growth- rised by Howard Landman: Piketty, game/?chapter=2 Chris Giles and wealth inequality: it’s 24. Figure 7.9, Chapter 7 Extended Analy- all about the discontinuities, Guard- ses (Figure 7.7 and table 7.7), Wealth 30. Gabriel Zucman, The Hidden Wealth of ian, available at http://www.the- in Great Britain 2012–14, Assets and Nations, 2015, p.29. guardian.com/news/datablog/2014/ Wealth Survey. may/29/piketty-chris-giles-and- 31. Taxing across Borders: Tracking Per- wealth-inequality-its-all-about-the- 25. Harvard Management Company, An- sonal Wealth and Corporate Profits, discontinuities?view=desktop. Also nual Endowment Report, 2014. Gabriel Zucman, Journal of Economic see Chris Giles’ analysis provided Perspectives, Volume 28, Number in the spreadsheet linked to on this 26. Thomas Piketty, Capital in the 21st 4, Fall 2014, Pages 121–148, avail- page: http://blogs.ft.com/money-sup- Century, 2014, p.448. able at: http://gabriel-zucman.eu/ ply/2014/05/23/data-problems-with- files/Zucman2014JEP.pdf capital-in-the-21st-century/ Finally, 27. The billionaires who do pay their for an approach which marries survey bills, including James Dyson and JK 32. Taxing across Borders, 2014. data with rich list data using a pareto Rowling, Independent, 22 June 2012. distribution to impute the wealth of Available at: http://www.independ- 33. The Hidden Wealth of Nations, Figure 2. the super-rich, see: How fat is the ent.co.uk/news/uk/home-news/ top tail of the wealth distribution? the-billionaires-who-do-pay-their- 34. The Hidden Wealth of Nations, p. 48. Philip Vermeulen, European Central bills-including-james-dyson-and-jk- Bank, 24 September 2014, available at: rowling-7873607.html 35. The judgment in Eoghan Flanagan, https://www.ecb.europa.eu/pub/pdf/ Christopher David Moyles, Allan scpwps/ecbwp1692.pdf 28. James Henry, a former Chief Econo- Stennett v HM Revenue and Customs mist of McKinsey & Co, and board is available at http://www.finance- 18. See for example, Equality Trust, member of the Tax Justice Network, andtaxtribunals.gov.uk/Aspx/view. Wealth Tracker 2015, available at: htt- estimated in 2012 that global elites aspx?id=7618 ps://www.equalitytrust.org.uk/sites/ may have hidden financial (i.e. not default/files/Wealth%20Tracker%20 including yachts, racehorses and gold 36. Tennis match with Cameron auc- 2015.pdf held in freeports) wealth from $21 – 32 tioned off for £160,000, BBC News, 4 trillion in offshore tax havens. The Price July 2014. Available at: http://www. 19. Sunday Times Rich List 2016 p.28. of Offshore Revisited, James Henry, Tax bbc.co.uk/news/uk-politics-28158479 ONS Wealth & Assets Survey Wave 4 Justice Network, 2012, available at: (2012–14), Fig 2.3. http://www.taxjustice.net/2014/01/17/ 37. The Capital Levy in Theory and Prac- price-offshore-revisited/. In 2013 Ox- tice, Barry Eichengreen, NBER Work- 20. Similar results are found across the fam estimated that wealth of $18.5 tril- ing Paper No 3096, 1989. Available at: Eurozone. See, for example, the lion (covering all asset classes) is stored http://www.nber.org/papers/w3096 Household Finance and Consump- in tax havens. Tax on the “private” tion Survey results coordinated by the billions now stashed away in havens 38. Eric Pichet, France’s 2011 ISF wealth European Central Bank. enough to end extreme world poverty tax reform: logic, risks and costs, La twice over, Oxfam, 22 May 2013, avail- Revue de droit fiscal, 2011. Available 21. Wealth in Great Britain Wave 4, 2012– able at: http://www.oxfam.org/en/eu/ at: http://www.researchgate.net/pub- 14 Office of National Statistics, 2015. pressroom/pressrelease/2013-05-22/ lication/228280693_Frances_2011_ tax-havens-private-billions-could- ISF_Wealth_Tax_Reform_Logic_ end-extreme-poverty-twice-over Risks_and_Costs

28 / A unique contribution 39. Cross Country review of taxes on wealth 46. “And rather than raising it in line Papers 60, 2015, available at: http:// and transfers of wealth, EY, European with overall inflation, we will do so in ec.europa.eu/taxation_customs/ Commission, 2014, p.40. Available at: line with the average rise in prices of resources/documents/taxation/gen_ http://ec.europa.eu/taxation_customs/ high-value properties over £2 million. info/economic_analysis/tax_papers/ resources/documents/common/publi- This will ensure that the number of taxation_paper_60.pdf cations/studies/2014_eu_wealth_tax_ properties paying the tax will not in- project_finale_report.pdf crease.” Ed Balls, A mansion tax will be 52. Åsa Hansson, Is the Wealth Tax fair, simple and pay to save the NHS, Harmful to Economic Growth? 40. Swedish Wealth Taxation (1911–2007), Evening Standard, 20 October 2014. World Tax Journal, 2010. Available at: Gunnar Du Rietz and Magnus Hen- Available at: http://www.standard. http://www.sv.uio.no/econ/english/ rekson, Research Institute of Indus- co.uk/comment/comment/ed-balls-a- research/centres/ofs/news-and- trial Economics, 2014, available at: mansion-tax-will-be-fair-simple-and- events/events/dokumenter/Hansson- http://papers.ssrn.com/sol3/papers. pay-to-save-the-nhs-9805924.html 8march13.pdf cfm?abstract_id=2374507## 47. YouGov / Evening Standard Sur- 53. Santiago Acosta-Ormaechea and Jiae 41. For the Irish experience between 1975 vey Results, Mansion Tax, Base: Yoo, Tax Composition and Growth: A and 1978 see ‘Wealth Tax: Options for 1200 London adults. Fieldwork: Broad Cross-Country Perspective, IMF its Implementation In the Republic of 8th – 13th August 2014. Available at: Working Paper, Fiscal Affairs Depart- Ireland’, Thomas McDonnell, TASC http://d25d2506sfb94s.cloudfront. ment, 2012, available at: https://www. and NERI, September 2013. Available net/cumulus_uploads/document/ imf.org/external/pubs/ft/wp/2012/ at: http://www.tasc.ie/download/pdf/ c8zgm75cal/ES_London_Omni_Re- wp12257.pdf tasc_neri_wealth_tax_tom_mcdon- sults_140813_Mansion_Tax.pdf nell.pdf 54. Jens Arnold, Bert Brys, Christo- 48. Mirlees Review, institute for Fiscal pher Heady, Åsa Johansson, Cyrille 42. Capital in the 21st Century, Thomas Studies, 2011, chapters 13 and 15, Schwellnus, and Laura Vartia, Tax Piketty, 2014. http://www.ifs.org.uk/publications/ Policy For Economic Recovery and mirrleesreview/ Growth, Economic Journal, 2011. 43. The Exchequer effect of the 50 per cent additional rate of income tax, 49. Why was a Wealth Tax for the UK 55. What will be the economic impact HMRC, March 2012, p.25, available at: abandoned? Lessons for the policy of the VAT rise to 20%, Price Water http://webarchive.nationalarchives. process and tackling wealth inequal- House Coopers, 2010, available at: gov.uk/20140109143644/http://www. ity, Howard Glennerster, Journal of http://www.pwcwebcast.co.uk/ukeo_ hmrc.gov.uk/budget2012/excheq- Social Policy, 2012, available at: http:// nov2010_vat.pdf and citing R. Barrell, income-tax-2042.pdf core.kmi.open.ac.uk/download/ ‘What are the effects on growth of in- pdf/1559894.pdf creases in taxes and cuts in spending?’ 44. Millionaire Monitor, Skandia, 2011, NIESR, 21st June 2010. available at: http://www.oldmutual- 50. Åsa Hansson, Is the Wealth Tax wealth.co.uk/Images/Investor%20 Harmful to Economic Growth? 56. Reviving Germany’s Wealth Tax Cre- news%20assets/Investing_for_finan- World Tax Journal, 2010. Available at: ates High Revenue Potential, by Ste- cial_goals/Millionaire_monitor_re- http://www.sv.uio.no/econ/english/ fan Bach and Andreas Thiemann, DIW port.pdf research/centres/ofs/news-and- Economic Bulletin 4+5.2016, available events/events/dokumenter/Hansson- at http://www.diw.de/documents/ 45. Wealth Tax: Options for its Imple- 8march13.pdf publikationen/73/diw_01.c.525515. mentation In the Republic of Ireland, de/diw_econ_bull_2016-04-3.pdf. Thomas McDonnell, TASC and NERI, 51. These and other arguments are sum- Also see A Wealth Tax on the Rich to September 2013, p. 22. Available at: marised well in ‘Wealth distribution Bring Down Public Debt? Revenue http://www.tasc.ie/download/pdf/ and taxation in EU Members’, Anna and Distributional Effects of a Capital tasc_neri_wealth_tax_tom_mcdon- Iara, Wealth distribution and taxation Levy in Germany, Stefan Bach, Martin nell.pdf in EU Members, Taxation Working Beznoska and Viktor Steiner, Fis-

29 / A unique contribution cal Studies, vol. 35, no. 1, pp. 67–89 Available at: http://webbs.library.lse. 70. Freedom of information request, data (2014). Available at: http://onlineli- ac.uk/127/1/FabianTracts188.pdf available from author. As the TOAA brary.wiley.com/doi/10.1111/j.1475- rules do not cover all forms of tax 5890.2014.12023.x/pdf 64. A Capital Levy and a Levy on War avoidance, these figures should be Wealth in 1920, Arthur Cecil Pigou, regarded as indicative only. 57. Bach et al, 2014, p.85. 1920, available at: https://openlibrary. org/books/OL7208855M/A_capi- 71. High-end property tax receipts above 58. A one-off wealth levy? Assessing the tal_levy_and_a_levy_on_war_wealth. forecast, Adam Palin, Financial Times, pros, the cons and the importance 6 November 2014, available at: http:// of credibility, Gerhard Kempkes 65. See How Britain Flirted With Cyprus www.ft.com/cms/s/0/40da2e1e- and Nikolai Stähler, Deutsches Style Wealth Raids, Ed Conway, 659d-11e4-aba7-00144feabdc0. Bundesbank, Discussion Paper No Blog, 2013, available at: http://www. html#axzz3q2D5LuT0 29/2014. Available at: http://www. edmundconway.com/2013/03/how- bundesbank.de/Redaktion/EN/ britain-flirted-with-cyprus-style- 72. Table 4.3, Economic and fiscal outlook, Downloads/Publications/Discussion_ wealth-raids/. On Keynes’s How to December 2012, Office of Budget Paper_1/2014/2014_10_29_dkp_29. Pay for the War, Peter Spahn, Univer- Responsibility, available at: https:// pdf?__blob=publicationFile sity of Hohenheim , 2013, working www.gov.uk/government/uploads/ paper, available at: https://wipol. system/uploads/attachment_data/ 59. A one-off wealth levy? Assessing the uni-hohenheim.de/fileadmin/einrich- file/235990/8481.pdf pros, the cons and the importance tungen/wipol/Publikationen_Spahn/ of credibility, Gerhard Kempkes howtopay.pdf 73. Tax Justice Network, Information and Nikolai Stähler, Deutsches Exchange, available at http://www. Bundesbank, Discussion Paper No 66. A.B. Atkinson, Unequal Shares, 1972, taxjustice.net/topics/secrecy/informa- 29/2014. Available at: http://www. p.199 and Richard Whiting, The La- tion-exchange/ bundesbank.de/Redaktion/EN/ bour Party and Taxation: Party Identity Downloads/Publications/Discussion_ and Political Purpose in Twentieth- 74. ONS data weaken case against Paper_1/2014/2014_10_29_dkp_29. Century Britain Hardcover, 2001. mansion tax, Chris Giles, Financial pdf?__blob=publicationFile Times, 3 July 2014, available at: http:// 67. UK tax take on wealthy ‘non-doms’ www.ft.com/cms/s/0/2701e860- 60. See How Britain flirted with Cyprus- rises 6%, Vanessa Houlder, Financial 0297-11e4-a68d-00144feab7de. style wealth raids, Ed Conway, blog Times, 3 February 2014, available at: html#axzz3NJD0tyeU 31 Mar 2013, available at: http://www. http://www.ft.com/cms/s/0/1fd89cde- edmundconway.com/2013/03/how- 8ce3-11e3-ad57-00144feab7de. 75. Taxation of Wealth and Wealth Trans- britain-flirted-with-cyprus-style- html#axzz3Nb8lKbAy fers, Robin Boadway, Emma Cham- wealth-raids/ berlain, and Carl Emmerson. Mirlees 68. See Figure 7.7 Chapter 7 Extended Review, Institute of Fiscal Studies, 61. Ricardo on the National Debt and Analyses (Figure 7.7 and table 7.7), 2010, available at: http://www.ifs.org. its redemption: some notes on an Wealth in Great Britain 2012–14, As- uk/uploads/mirrleesreview/dimen- unpublished Ricardian manuscript, sets and Wealth Survey sions/ch8.pdf P.F. Asso, E. Barucci, Economic Notes, 1988, pp. 5–37. 69. This is indeed the implication of the 76. Commentary on Taxation of Wealth following paper by a European Cen- and Wealth Transfers, Martin Weale. 62. The Capital Levy in Theory and Prac- tral Bank economist. ‘How fat is the Mirlees Review, Institute of Fiscal tice, Barry Eichengreen, NBER work- top tail of the wealth distribution?’ Studies, 2010, available at: http:// ing papers 3096, 1989. Philip Vermeulen, European Central www.ifs.org.uk/uploads/mirrleesre- Bank, 24 September 2014, available at: view/dimensions/ch8.pdf 63. Sidney Webb, National finance and a https://www.ecb.europa.eu/pub/pdf/ levy on capital, what the Labour party scpwps/ecbwp1692.pdf 77. Cross Country review of taxes on intends, The Fabian society, 1919. wealth and transfers of wealth, EY, Eu-

30 / A unique contribution ropean Commission, 2014. Available parliament.uk/business/publications/ 91. Taxation of Intercompany Dividends at: http://ec.europa.eu/taxation_cus- research/briefing-papers/SN04369/ Under Tax Treaties and EU Law, Gug- toms/resources/documents/common/ retrospective-taxation-earlier-debates lielmo Maist, p. 892, 2012. publications/studies/2014_eu_wealth_ tax_project_finale_report.pdf 84. Revenue Law: principles and practice 92. Are the Danish CFC Rules in Conflict 23rd edition 2006 pp 1241–2; cited with the Freedom of Establishment? 78. A general exemption of €21,139 is in Retrospective taxation: earlier de- – An Analysis of the Danish CFC available for each taxpayer. bates, ibid. Regime for Companies in Light of ECJ Case Law, P. Koerver Schmidt, 79. Kleine spaarder gaat minder belasting 85. George Osborne calls for global European Taxation, January 2014, betalen, by Ulko Jonker Alexander Weis- blacklist of tax havens after Panama Available at: http://corit-advisory. sink, Financieel Dagblad, 28 August Papers, Guardian, 15 April 2016, avail- com/wp-content/uploads/2011/12/ 2015. Available at: http://fd.nl/econo- able at: http://www.theguardian.com/ Are-the-Danish-CFC-Rules-in-Con- mie-politiek/1116546/kleine-spaarder- world/2016/apr/15/george-osborne- flict-with-the-Freedom-of-Establish- gaat-minder-belasting-betalen panama-papers-tax-havens-blacklist- ment-An-Analysis-of-the-Danish- imf CFC-Regime-for-Companies-in- 80. See for example, Vince Cable, Lib Light-of-ECJ-Case-Law-Peter-Ko- Dems may vote with Labour on 86. This is the approach taken by Greece, erver-Schmidt-European-Taxation.pdf mansion tax, Telegraph, 17 Feb 2013. Italy, Lithuania, Norway. Deloitte, Available at: http://www.telegraph. Guide to Controlled Foreign Com- 93. Further, if rapid technological change co.uk/news/politics/liberaldemo- pany Regimes, January 2014, avail- and increased automation does crats/9875842/Lib-Dems-may-vote- able at: http://www2.deloitte.com/ threaten many existing jobs, while with-Labour-on-mansion-tax.html content/dam/Deloitte/global/Docu- income flows not to labour but to the ments/Tax/dttl-tax-guide-to-cfc- owners of, say, the companies making 81. Revenue Law: principles and practice regimes-210214.pdf robots then orienting the tax system 23rd edition 2006 pp 1241–2; cited in away from wages might become in- Retrospective taxation : earlier de- 87. This is the approach taken by Estonia, creasingly important. See point made bates, Seeley, House Commons Li- France, Hungary, Spain. Germany by Laura Tyson here: http://www. brary Standard Note: SN04369, 18 defines low tax jurisdictions as those mckinsey.com/global-themes/em- July 2012, available at: http://www. with effective tax rates on passive in- ployment-and-growth/automation- parliament.uk/business/publications/ come as that below 25%, Hungary as jobs-and-the-future-of-work research/briefing-papers/SN04369/ those below 10%. Deloitte, ibid. retrospective-taxation-earlier-debates 94. Tony Atkinson, Inequality – What can 88. This is the approach taken by Finland, be done?, 2015 82. Article 7, No punishment without law, Iceland, Portugal, Spain, Sweden. De- states: No one shall be held guilty of loitte, ibid. any criminal offence on account of any act or omission which did not consti- 89. EC Tax Scene: German Finance Minis- tute a criminal offence under national try Reacts to ECJ Cadbury Schweppes or international law at the time when Decision, Anno Rainer, Stefan Müller, it was committed. Nor shall a heavier (2007) 35 Intertax, Issue 3, pp. 203–205 penalty be imposed than the one that was applicable at the time the criminal 90. CFC Rules in Portugal: Still Incompat- offence was committed. ible with EU Law? Alcídio Mateus Ferreira, European Taxation, Septem- 83. Retrospective taxation : earlier de- ber 2012. Available at: http://www. bates, Seeley, House Commons Li- mateusferreira.com/wp-content/ brary Standard Note: SN04369, 18 uploads/2014/01/cfc-rules-in- July 2012, available at: http://www. portugal.pdf

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