There are problems with wealth taxes but avoidance, for once, isn't one of them

Taxing illiquid assets is, well, taxing.

Fraser Nelson, editor of the Spectator, has a column in today's Telegraph arguing that George Osborne needs to learn the lesson that "wealth taxes simply don't work". He writes:

The problems involved were fairly basic. Do you tax people’s worldwide wealth? If so, those much-needed businessmen will stay away. Do you tax only British wealth? Then people will move their investments abroad. The Treasury warned Healey that the proposed wealth tax was “political dynamite” – and not in a good way. At a time when Britain was in a desperate economic state, it risked dragging the country down further still. Healey gave up, saying he could not find any wealth tax that would be worth the political hassle.

This is disappointing, because Nelson is largely duelling with straw men here. It is indeed true that a tax on overall wealth could well lead to tax avoidance by the relatively simple tax planning strategy known as "keeping your cash in a Swiss bank account". The thing is, that isn't actually that much of a problem. After all, people avoid income tax as well, yet somehow we struggle on.

The measure for a tax is never "will everyone pay it rather than put their energy into avoiding it?", but "will enough people pay it to make it worth our while?" That's a different calculus, and one which Nelson doesn't address.

But the real disappointment is that, for all Nelson talks about the rising support for a wealth tax, he neglects to mention that most of that support is for taxing a very specific type of wealth: property. It's a shame, because that sort of tax – a "mansion tax", a "land value tax", or whatever form it takes – has its own set of problems which are under-discussed.

The important thing to note about property taxes do is that they completely fix the problems Nelson is concerned about when it comes to wealth taxes in general. You can keep money overseas, but a house in Britain is rather stuck where it is. To the extent that such a tax it increases the cost of living in Britain, it may keep wealthy foreigners away – but only those who haven't already been put off by the extraordinary cost of the sort of houses wealthy foreigners buy.

The thing is, land and property taxes aren't the golden bullet that many on the left like to think, for the key reason that houses aren't particularly liquid assets.

We've all heard the sob-story of the elderly pensioner who could be forced to sell the house he's lived in all his life to pay the land value tax (although we rarely hear it alongside its counterpart, the elderly pensioners who are being forced to moved out of houses they've lived in all their lives because of benefit cuts), but the key concern with such a tax is related to that problem.

If you are taxed, say, 20 per cent of your cash holdings, you pay that tax by handing 20 per cent of your cash to HMRC. If you are taxed on 20 per cent of the value of your land, you can't just hand a wing of your house over to the taxman. You either have to have the cash equivalent available, or sell your house.

Taken individually, that's not the end of the world – few will cry too hard if the odd landowner has to sell a few acres to pay the bill. The problem comes if the tax is set high enough that that sort of sale becomes commonplace.

If too many people end up trying to sell their mansions or land at the same time, then you're stuck with a sadly inevitable collapse in the price that land can go for. That's not just unfair – it means you would be taxing people on assets which are no longer worth what they were when you assessed them – it's also staggeringly inefficient. A well-designed tax should not encourage a fire-sale of assets.

These problems aren't insurmountable, by any means. But they do give pause for thought when considering the truely radical proposals like Peter Tatchell's plan to set the wealth tax rate at 20 per cent. Although back-of-the-envelope calculations suggest such a tax would generate truly staggering revenue, a more modest rate would be a better idea – at least at the start.

This mansion, in Kensington, London, was once the most expensive in the world. What'd the tax be? Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

Photo: Martin Whitfield
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Labour MP for East Lothian Martin Whitfield: "I started an argument and ended up winning an election"

The former primary school teacher still misses home. 

Two months ago, Martin Whitfield was a primary school teacher in Prestonpans, a small town along the coast from Edinburgh. Then he got into an argument. It was a Saturday morning shortly after the snap election had been called, and he and other members of the local Labour party began discussing a rumour that the candidate would be an outsider.

“I started an argument that this was ridiculous, we couldn’t have a candidate helicoptered in,” he recalls. He pointed out that one of the main issues with the Scottish National Party incumbent, the economist and journalist George Kerevan, was that he was seen as an outsider.

“I kept arguing for an hour and a half and people started gently moving away,” he jokes. “About two days later I was still going on, and I thought enough’s enough.” 

He called Iain Gray, the Scottish Labour veteran, who interrupted him. “He said, 'Right Martin, are you going to put up or shut up?’ So I filled in the forms.

"Then I had to have a very interesting conversation with my wife.”

One successful election campaign later, he is sitting in the airy, glass-roofed atrium of Westminster’s Portcullis House. Whitfield has silver hair, glasses, and wears a Labour-red tie with his shirt. He looks every bit the approachable primary school teacher, and sometimes he forgets he isn’t anymore. 

I ask how the school reacted to his election bid, and he begins “I have”, and then corrects himself: “There is a primary four class I had the pleasure to teach.” The children wanted to know everything from where parliament was, to his views on education and independence. He took unpaid leave to campaign. 

“Actually not teaching the children was the hardest thing,” he recalls. “During the campaign I kept bumping into them when I was door-knocking.”

Whitfield was born in Newcastle, in 1965, to Labour-supporting parents. “My entire youth was spent with people who were socialists.”

His father was involved in the Theatre Workshop, founded by the left-wing director Joan Littlewood. “We were part of a community which supported each other and found value in that support in art and in theatre,” he says. “That is hugely important to me.” 

He trained as a lawyer, but grew disillusioned with the profession and retrained as a teacher instead. He and his wife eventually settled in Prestonpans, where they started a family and he “fought like mad” to work at the local school. She works as the marketing manager for the local theatre.

He believes he won his seat – one of the first to be touted as a possible Labour win – thanks to a combination of his local profile, the party’s position on independence and its manifesto, which “played brilliantly everywhere we discussed it”. 

It offered hope, he says: “As far as my doorstep discussion in East Lothian went, some people were for and against Jeremy Corbyn, some people were for and against Kezia Dugdale, but I didn’t find anyone who was against the manifesto.”

Whitfield’s new job will mean long commutes on the East Coast line, but he considers representing the constituency a “massive, massive honour”. When I ask him about East Lothian, he can’t stop talking.

“MPs do tend to say ‘my constituency’s a microcosm’, but it really is Scotland in miniature. We have a fishing industry, crabs and lobsters, the agricultural areas – the agricultural soil is second to none.” The area was also historically home to heavy industry. 

After his first week in Westminster, Whitfield caught the train back to Scotland. “That bit when I got back into East Lothian was lovely moment,” he says. “I was home.”

Julia Rampen is the digital news editor of the New Statesman (previously editor of The Staggers, The New Statesman's online rolling politics blog). She has also been deputy editor at Mirror Money Online and has worked as a financial journalist for several trade magazines. 

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