Scotland could lead the UK in taxing wealth

Common Weal is featured in a front page article in The National today on how Scotland can use its devolved powers to tax wealth.

The debate around a UK wealth tax is intensifying and it is yet to be seen if the UK Government can continue to resist the pressure to not bring in some kind of tax on the wealthy - especially given recent news of the economy faltering.

How much money a wealth tax actually brings in will largely depend on how it is implemented. The simplest form - an annual payment based on a percentage of the total value of all of the assets a wealthy person owns - could be tricky to implement in practice and may lead to tax dodging via placing assets in trusts or the wealthy leaving the UK (though threats of the latter are often overstated).

More complex schemes like adjustments to Capital Gains tax, inheritance tax or reforms to pensions may be more effective, but these taxes are all reserved to the UK Government and so are out of the reach of the Scottish Parliament prior to independence.

However, our article points out that the patterns of wealth in Scotland compared to the UK as a whole (especially compared to London) mean that two devolved taxes could be used to effectively tax wealth in Scotland.

If we replaced Council Tax with a Property Tax based on a percentage of the current value of a house (as is done in many countries in Europe) then the rate could be set to maintain Local Authority funding on a “revenue neutral” basis. Doing this would give a tax cut to everyone living in a home worth less than about £400,000 (eight in ten homes in Scotland are worth less than this) and would shift the tax onto those who owned more expensive properties who benefit from the current broken Council Tax.

If we then extended that Property Tax to land and estates then we’d effectively bring in a Scottish Land Tax that would raise around £450 million per year from people who store their wealth in Scottish land.

The major advantage of these kinds of taxes is that they cannot be dodged by leaving the country. Wherever someone lives in the world (and remembering that many of Scotland’s estates are already absentee-owned), they still need to pay the tax on the land they own in Scotland.

Wealth inequality is one of the major drivers of the economic and social tensions we face today. Scotland doesn’t need to wait for a reluctant UK Government to finally realise this and start to do something about it. We could already make that start today.