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.

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What type of Brexit did we vote for? 150,000 Conservative members will decide

As Michael Gove launches his leadership bid, what Leave looks like will be decided by Conservative activists.

Why did 17 million people vote to the leave the European Union, and what did they want? That’s the question that will shape the direction of British politics and economics for the next half-century, perhaps longer.

Vote Leave triumphed in part because they fought a campaign that combined ruthless precision about what the European Union would do – the illusory £350m a week that could be clawed back with a Brexit vote, the imagined 75 million Turks who would rock up to Britain in the days after a Remain vote – with calculated ambiguity about what exit would look like.

Now that ambiguity will be clarified – by just 150,000 people.

 That’s part of why the initial Brexit losses on the stock market have been clawed back – there is still some expectation that we may end up with a more diluted version of a Leave vote than the version offered by Vote Leave. Within the Treasury, the expectation is that the initial “Brexit shock” has been pushed back until the last quarter of the year, when the election of a new Conservative leader will give markets an idea of what to expect.  

Michael Gove, who kicked off his surprise bid today, is running as the “full-fat” version offered by Vote Leave: exit from not just the European Union but from the single market, a cash bounty for Britain’s public services, more investment in science and education. Make Britain great again!

Although my reading of the Conservative parliamentary party is that Gove’s chances of getting to the top two are receding, with Andrea Leadsom the likely beneficiary. She, too, will offer something close to the unadulterated version of exit that Gove is running on. That is the version that is making officials in Whitehall and the Bank of England most nervous, as they expect it means exit on World Trade Organisation terms, followed by lengthy and severe recession.

Elsewhere, both Stephen Crabb and Theresa May, who supported a Remain vote, have kicked off their campaigns with a promise that “Brexit means Brexit” in the words of May, while Crabb has conceded that, in his view, the Leave vote means that Britain will have to take more control of its borders as part of any exit deal. May has made retaining Britain’s single market access a priority, Crabb has not.

On the Labour side, John McDonnell has set out his red lines in a Brexit negotiation, and again remaining in the single market is a red line, alongside access to the European Investment Bank, and the maintenance of “social Europe”. But he, too, has stated that Brexit means the “end of free movement”.

My reading – and indeed the reading within McDonnell’s circle – is that it is the loyalists who are likely to emerge victorious in Labour’s power struggle, although it could yet be under a different leader. (Serious figures in that camp are thinking about whether Clive Lewis might be the solution to the party’s woes.) Even if they don’t, the rebels’ alternate is likely either to be drawn from the party’s Brownite tendency or to have that faction acting as its guarantors, making an end to free movement a near-certainty on the Labour side.

Why does that matter? Well, the emerging consensus on Whitehall is that, provided you were willing to sacrifice the bulk of Britain’s financial services to Frankfurt and Paris, there is a deal to be struck in which Britain remains subject to only three of the four freedoms – free movement of goods, services, capital and people – but retains access to the single market. 

That means that what Brexit actually looks like remains a matter of conjecture, a subject of considerable consternation for British officials. For staff at the Bank of England,  who have to make a judgement call in their August inflation report as to what the impact of an out vote will be. The Office of Budget Responsibility expects that it will be heavily led by the Bank. Britain's short-term economic future will be driven not by elected politicians but by polls of the Conservative membership. A tense few months await. 

Stephen Bush is special correspondent at the New Statesman. He usually writes about politics.