The fiscal response to Covid-19: 'Thinking big' on tax policy after the crisis

Around the world, the unprecedented public spending required to tackle COVID-19 will inevitably be followed by a debate about how to rebuild public finances. At the same time, politicians in many countries are already facing far-reaching questions from their electorates about the widening cracks in the social fabric that this pandemic has exposed, as prior inequalities become amplified and public services are stretched to their limits. These simultaneous shocks to national politics inevitably encourage people to 'think big' on tax policy.

Even before the current crisis there were widespread calls for reforms to the taxation of wealth in the UK. These proposals have so far focused on reforming existing taxes. However, other countries have begun to raise the idea of introducing a 'wealth tax'-a new tax on ownership of wealth (net of debt). COVID-19 has rapidly pushed this idea higher up political agendas around the world, but existing studies fall a long way short of providing policymakers with a comprehensive blueprint for whether and how to introduce a wealth tax.

Critics point to a number of legitimate issues that would need to be addressed. Would it be fair, and would the public support it? Is this type of tax justified from an economic perspective? How would you stop the wealthiest from hiding their assets? Will they all simply leave? How can you value some assets? What happens to people who own lots of wealth, but have little income with which to pay a wealth tax? And if wealth taxes are such a good idea, why have many countries abandoned them?

These are important questions, without straightforward answers. The UK government last considered a wealth tax in the mid-1970s. This was also the last time that academics and policymakers in the UK thought seriously about how such a tax could be implemented. Over the past half century, much has changed in the mobility of people, the structure of our tax system, the availability of data, and the scope for digital solutions and coordination between tax authorities. Old plans therefore cannot be pulled 'off the shelf'.

This project will evaluate whether a wealth tax for the UK would be desirable and deliverable. We will address the following three main research questions:

(1) Is a wealth tax justified in principle, on economic or other grounds?
(2) How should a wealth tax be designed, including definition of the tax base and solutions to administrative challenges such as valuation and liquidity?
(3) What would be the revenue and distributional effects of a wealth tax in the UK, for a variety of design options and at specified rates/thresholds?

To answer these questions, we will draw on a network of world-leading exports on tax policy from across academia, policy spheres, and legal practice. We will examine international experience, synthesising a large body of existing research originating in countries that already have (or have had) a wealth tax. We will add to these resources through novel research that draws on adjacent fields and disciplines to craft new solutions to the practical problems faced in delivering a wealth tax. We will also review common objections to a wealth tax.

These new insights will be published in a series of 'evidence papers' made available directly to the public and policymakers. We will also publish a final report that states key recommendations for government and (if appropriate) delivers a 'ready to legislate' design for a wealth tax. We will not recommend specific rates or thresholds for the tax. Instead, we will create an online 'tax simulator' so that policymakers and members of the public can model the revenue and distributional effects of different options. We will also work with international partners to inform debates about wealth taxes in other countries.