There are several reasons why Nick Clegg might have chosen to call for the introduction of a temporary wealth tax just now, some more laudable than others. He might have been looking for an eye-catching idea to mark his return to politics after his summer holiday. He might have wanted to demonstrate that the Liberal Democrats were raring to go, in good time for the new parliamentary term. Or he might have been searching for ways to put clear blue water between his party and the Conservatives on the eve of the party conference season. He admitted, after all, that the Conservatives were not as enamoured as his own Liberal Democrats of the view that the broadest shoulders should carry the heaviest burden.
That there was a doubtless tactical dimension to the Deputy Prime Minister's proposal does not mean, however, that the idea deserves to be dismissed as no more than cynical politicking. It can reflect political calculation and still have merit. And the concept of a temporary wealth tax is worth more than a cursory glance, not least because it will test whether there is finally an appetite in Government for tackling a long-standing conundrum. If, as it appears, raising income tax above a certain level results in no more – or maybe less – revenue for the Treasury, because the wealthy can move their income around in a way that others cannot, how can any government extract more money from those most able to afford it? Wealth has always been adept at seeking out the most profitable and secure home; increasing income tax, it can be argued, simply increases the incentive for the highest earners to shop around.
When the then Chancellor, Alistair Darling, raised the top rate of UK income tax to 50 per cent, many warned that he risked either driving the rich away or increasing legal tax avoidance, or both. But others suggested that, while higher rates of income tax might have had the effect of reducing the overall tax take in the past, greater international transparency now made avoidance harder. That, and the opprobrium in which many of the highest earners were held in the wake of the financial crisis, fuelled arguments to the effect that times had changed. The famous Laffer curve, it was said, was out of date. Not so out of date, it transpired, however, as to deter George Osborne from reducing the top rate of income tax to 45 per cent in his last Budget. And the figures for last year's tax take – which fell – might be interpreted as justifying that decision. In liability to tax, it seems, the rich are still different from the rest of us.
If a higher rate of income tax does not correspond to a higher tax take, though, what might? How can those who enjoy the benefits of living in Britain – from First-World public services to reliable institutions to luxury shopping – be made to pay what the hard-pressed majority would see as a fairer share?
The answer hazarded by Mr Clegg is an emergency tax targeting assets rather than income. Although he presented his idea as separate from the so-called mansion tax he and the Business Secretary, Vince Cable, championed last year, the rationale is similar: fixed assets are harder to transfer out of the tax jurisdiction. And why, if a progressive income tax stops being progressive at this level, should wealth not be fair game? Sympathy for the stereotypical widow – asset-rich, but cash poor, intent on living in her multimillion-pound pile until her dying day – can only go so far. The Chancellor rejected a mansion tax at the last Budget, but it seems to have been a close thing. Perhaps the harsh reality of the reduced tax take could persuade him to change his mind.