It can be infuriating making the case for free markets. Too much time has to be spent batting away obviously terrible, tried-and-failed ideas. Proposals for a wealth tax are just the latest iteration requiring many a wall to be bashed with many a head. Just in the last few days, a group called ‘Patriotic Millionaires’ has urged Rachel Reeves to consider a ‘simple way’ to grow the economy with a tax of 2% on wealth over £10 million per year. A recent piece in the New Statesman concluded that a wealth tax wouldn’t be straightforward, but it could work. The new director of the Institute for Fiscal Studies has also called for a one-off wealth tax.
This is mad. As a TaxPayers’ Alliance study of wealth taxes has demonstrated, they’ve failed everywhere they’ve been tried. When Labour considered one in the 1970s, they concluded it would be unworkable, despite capital being far less mobile then than it is today.
We are already seeing the wealthy flee at a shocking rate (just look at the Adam Smith Institute’s millionaire tracker), forced abroad by changes to non-dom rules, punitive marginal tax rates, shoddy public services, increasing crime and the imposition of VAT on private schools, to name just a few incentives. When this is pointed out to proponents of wealth taxes, as I recently found on LBC, the response is not to dispute the problem but to bemoan the fact that every time the rich are asked to pay their ‘fair share’, they throw their toys out the pram and flee.
This is a disturbing attitude. The antipathy to the wealthy and successful seems to only be escalating. The more that leave, the worse it gets. It’s not inconceivable to picture a Britain where the wealthy have all jumped ship, leaving public services to suffer while tax rates on ordinary families are sent through the roof in a desperate scramble to plug the black hole. The Titanic may be sinking, but at least the Gini coefficient of those left on the boat is closer to zero.
The latest example of this is the council tax premium on second homes. If it’s not exhibit A in the museum of what went wrong with the Conservatives, it certainly deserves a prime location. In the Levelling Up and Regeneration Act 2023, councils in England were given the powers to add a 100% premium on council tax bills for second homes. What should be a reasonable aspiration for the affluent – a holiday home – became the subject of envy and contempt as second homeowners were blamed for driving the housing crisis, among other ills. Three quarters of councils in England are introducing one from April.
But there’s a significant problem with the premium: it’s so nakedly a cash grab. A key principle of council tax is that it’s not purely a property tax. There is a clear link to how much a household uses local services. Hence the single-person discount, which entitles a property to 25% off the bills of a single-person household. You won’t be putting out the bins as frequently as a family of four, you’ll use the roads less, likely not use the education system at all, and so on.
Second-home owners of course use services less than someone living at a place as their primary, or sole, residence. Now there are certainly arguments for not providing a discount – while a second-home owner will use the council less, they will also likely contribute less to the local economy. Some services have a fixed cost. A council in an area with a major tourism industry could really suffer if second homeowners received a discount, even if there may be some benefits to the local tourism industry.
But to ask them to pay more? And not just more, but double? That means that a family with a small cottage in, let’s say, Dorset, will see their bills go from £2,500 to £5,000 overnight. That’s just for the average property.
And why? Well the revenue argument is nonsense – it’s expected to raise only around £500m, a tiny fraction of total council spending and practically peanuts when distributed around the hundreds of councils imposing it. The other argument, and the more pernicious one, revolves around the housing crisis. It’s argued that second-home owners are taking up housing that is needed by locals who are being priced out. Except second-home ownership is just one infinitesimally small cause of this problem. The bulk is caused by the miserable failure of town halls in this country to build enough homes for the population who live here, and the failure of the national government to control the level of immigration.
Yet now those who have the temerity to be affluent are being told to cough up to clean up the almighty mess made by our political class. It’s yet another reason for the wealthy to line up for the last chopper out of Saigon. Rather than criticising those who leave, we should increasingly be thanking those who choose to stay.
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