Britain raises more tax from wealth than any other OECD country

Britain already levies more as a share of GDP in wealth and wealth-related taxes than any other OECD country, making the case for a new wealth tax weaker here than anywhere else in the developed world, according to a new paper from the Institute of Economic Affairs.

Fool’s Gold: The case against the wealth tax, and suggestions for alternatives by Dr Kristian Niemietz makes the comprehensive case against a new wealth tax. It finds that when property taxes, inheritance tax, stamp duty and capital gains tax are combined into a single category of ‘wealth and wealth-related taxes’, the UK raises more revenue from them as a share of GDP than any other OECD economy — including Spain, Norway and Switzerland, the only three European countries that retain a formal wealth tax. Wealth tax campaigners are, in effect, demanding that Britain layer an additional tax on top of a system that already taxes wealth more heavily than its peers.

In the early 1990s, around half of all Western European countries levied a wealth tax. Today, only three meaningful examples survive. Governments of every political stripe abandoned wealth taxes for the same reasons: high administrative and compliance costs, limited revenue, capital flight and negative effects on investment and entrepreneurship.

These are also precisely the reasons why previous British attempts to introduce one — most notably under Harold Wilson in 1974 — were quietly dropped. As Denis Healey later admitted, in five years he found it impossible to draft a wealth tax that would yield enough revenue to justify the administrative cost and political effort.

The revenue case collapses under scrutiny

Campaigners frequently cite £25 billion as a revenue target — roughly 1% of GDP. The paper shows this would amount to around one-fifth of the current budget deficit, or the equivalent of NHS budget increases already delivered over the past five years without a wealth tax. But even that figure is almost certainly overstated.

Current proposals target only around 32,000 households with wealth above £10 million, a far narrower base than any historical wealth tax. France’s wealth tax, in its final year, applied to more than 360,000 taxpayers. A British version would need to extract far more from far fewer people — dramatically increasing the incentive and ability to restructure, relocate or reclassify assets. Just 5,000 households would account for 80% of any revenue raised.

Inequality: a solution in search of a problem

The paper also challenges the premise that UK wealth inequality is out of control. The wealthiest 1% own around 22% of total wealth — below the EU average of 25% and well below the US figure of over 35%. Wealth inequality is lower today than at almost any point in the 20th century. Even where a wealth tax did affect the distribution, it would only flatten the very top, redistributing wealth among the already-wealthy rather than extending it further down the distribution.

Create wealth, don’t tax it

The paper proposes two alternatives that would reduce wealth inequality by enabling more people to accumulate wealth of their own:

Pension reform along Australian lines. Transitioning from a pay-as-you-go state pension to a savings-based system would allow millions of people to build substantial assets over a working lifetime, as countries including Australia, Denmark and the Netherlands have already demonstrated.

A YIMBY revolution in housing supply. Home ownership rates among people in their early 30s have fallen from over 60% in the early 1990s to below 40% today — not because the wealthy are hoarding properties, but because Britain builds too few homes. A building boom on the scale of the 1930s, when the housing stock was growing at close to 3% per year, would extend property wealth to millions who currently have none.

Dr Kristian Niemietz, Editorial Director and Head of Political Economy at the Institute of Economic Affairs, said:

“The current hype around wealth taxes is entirely vibes-based, and completely undeserved. Wealth taxes have been tried many times before, and no actually existing wealth tax has ever come close to delivering what its keenest supporters are promising today.

“Among economists, even those who are sympathetic to wealth taxes in principle concede that it comes with a myriad of practical problems and harmful side-effects.

“Everything wealth tax campaigners are trying can be better achieved in other ways. There are vastly superior alternatives to wealth taxes.”

Dan Neidle, Founder of Tax Policy Associates said:

“The UK’s greatest problems are anaemic economic growth and a lack of supply of housing. An annual wealth tax offers no solution to either, and risks actively hindering the growth we desperately need. This paper does an important job of shifting the debate: if we want to tackle inequality, the answer isn’t an unworkable new tax; it’s building homes and letting more people build wealth of their own.”

The Rt Hon Lord Frost, Senior Policy Fellow ar the Institute of Economic Affairs, said:

“Wealth taxes are panacea policies, fantasy solutions advocated by those who don’t want to face up to the task of implementing an economic strategy that will genuinely make us richer and more prosperous. What Britain needs is less spending and lower taxes, not another effort to extract even more from hard-pressed businesses and voters.”