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: Getty
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There's just one future for the left: Jeremy Corbyn

Labour's new leader is redefining Labour for the 21st century, argues Liam Young. 

The politics of the resurgent left comes down to one simple maxim: people are sick and tired of establishment politics. When one makes this statement it is usually met with some form of disapproval. But it is important to realise that there are two different types of people that you have this conversation with.

First there are the people I surround myself with in a professional environment: political types. Then there are the people I surround myself with socially: normal people.

Unsurprisingly the second category is larger than the first and it is also more important. We may sit on high horses on Twitter or Facebook and across a multitude of different media outlets saying what we think and how important what we think is, but in reality few outside of the bubble could care less.

People who support Jeremy Corbyn share articles that support Jeremy Corbyn - such as my own. People who want to discredit Jeremy Corbyn share articles that discredit Jeremy Corbyn - like none of my own. It is entirely unsurprising right? But outside of this bubble rests the future of the left. Normal people who talk about politics for perhaps five minutes a day are the people we need to be talking to, and I genuinely believe that Labour is starting to do just that.

People know that our economy is rigged and it is not just the "croissant eating London cosmopolitans" who know this. It is the self-employed tradesman who has zero protection should he have to take time off work if he becomes ill. It is the small business owner who sees multi-national corporations get away with paying a tiny fraction of the tax he or she has to pay. And yes, it is the single mother on benefits who is lambasted in the street without any consideration for the reasons she is in the position she is in. And it is the refugee being forced to work for less than the minimum wage by an exploitative employer who keeps them in line with the fear of deportation. 

The odds are stacked against all normal people, whether on a zero hours contract or working sixty hours a week. Labour has to make the argument from the left that is inclusive of all. It certainly isn’t an easy task. But we start by acknowledging the fact that most people do not want to talk left or right – most people do not even know what this actually means. Real people want to talk about values and principles: they want to see a vision for the future that works for them and their family. People do not want to talk about the politics that we have established today. They do not want personality politics, sharp suits or revelations on the front of newspapers. This may excite the bubble but people with busy lives outside of politics are thoroughly turned off by it. They want solid policy recommendations that they believe will make their lives better.

People have had enough of the same old, of the system working against them and then being told that it is within their interest to simply go along with it.  It is our human nature to seek to improve, to develop. At the last election Labour failed to offer a vision of future to the electorate and there was no blueprint that helped people to understand what they could achieve under a Labour government. In the states, Bernie Sanders is right to say that we need a political revolution. Here at home we've certainly had a small one of our own, embodying the disenchantment with our established political discourse. The same-old will win us nothing and that is why I am firmly behind Jeremy Corbyn’s vision of a new politics – the future of the left rests within it. 

Liam Young is a commentator for the IndependentNew Statesman, Mirror and others.