Could broader windfall taxes be the new version of wealth taxes?

The shadow chancellor, Rachel Reeves, confirmed this weekend that Labour has no plans to introduce a wealth tax on the richest individuals in society. This decision has been criticised by some left-wing pressure groups. But, if a wealth tax for individuals is off the table, what other options might be considered to fund any future additional spending plans? 

Labour previously pledged to extend the windfall taxes on energy companies, highlighting their support of raising tax revenues from the UK’s largest corporations. If Labour are elected at the next general election, could they look to repurpose the windfall taxes and broaden these to other large UK corporations as a form of wealth tax? 

A modest wealth tax on all publicly listed companies headquartered in the UK or pro-rated for those headquartered elsewhere but with UK activities, would raise substantial revenues for the UK government. Economists such as Emmanuel Saez and Gabriel Zucman have argued the benefits of such wealth taxes in the US, suggesting that such a regime would work in harmony with the upcoming implementation of the OECD’s global minimum tax rate, if the wealth tax regime was globally adopted. 

In isolation, the regime could still raise substantial revenues for the UK government, but it might come at a cost. Teamed with the recent increase in the UK corporation tax rate to 25%, one could argue that an additional annual wealth tax could deter investment into the UK and reduce future tax streams that would have otherwise arisen. Given pension schemes are a key investor in the UK stock market, the impact of any wealth tax on listed companies could also be felt indirectly by a large number of UK taxpayers.  

Others might argue that generating tax revenues from the largest corporations in the UK is a progressive way of taxing society, spreading the impact more fairly between UK taxpayers. Especially if the revenues raised are sufficient to reduce the tax burden currently being shouldered by the average family, giving them additional disposable income to spend within the UK economy, allowing for economic growth. 

Looking at the companies with the largest market cap on the FTSE 100, as an example of how a wealth tax could possibly work, a wealth tax of 0.1% on the market cap of just one of these alone could generate additional annual tax revenues for the UK government in excess of £100m. If all FTSE 100 companies were subject to a 0.1% wealth tax on their market cap, this could raise additional annual funds of circa £2bn for the public purse. 

Whilst not currently required as part of Rachel Reeves’ spending plans for Labour, only time will tell for what various parties have planned for their wider manifestos. The impact of implementing an entirely new wealth tax is likely to be deemed too risky to the growth of the UK economy and would represent something of a political wildcard to any party seeking to play it.