Yes, we’re in a hole, Rishi. But don’t be even more of a Corbynista than Jeremy

RISHI SUNAK has ordered a review of capital gains tax. The Chancellor has asked the splendidly named Office of Tax Simplification to consider how exemptions from the tax could be reformed or scrapped.

That fine body, I wager, will come back with a plan that won’t be simple but will show how the Government could extract more tax from people who make a profit on the sale of houses, shares and other assets.

And why not, some will say? Mr Sunak has spent £ 190billion propping up the economy. That figure is bound to rise substantially; it could easily double. If unemployment soars next year, so will government payouts to those who have lost their jobs.

All this is borrowed money, and must be paid back. Little wonder that the Chancellor’s eyes have alighted on capital gains tax, though it currently raises only about £9billion a year, which is slightly more than one per cent of all tax receipts.

Others are suggesting he should broaden his horizons. Why not a wealth tax? Labour is flirting with the idea, though in a television interview shadow chancellor Anneliese Dodds wouldn’t commit herself to this.

A tax on assets is undoubtedly popular. A recent YouGov poll found 61 per cent of respondents supported a wealth tax on people with assets worth more than £750,000. Previous polls have produced similar results.

Even a few of the super-rich are begging to pay more tax. This week, 83 virtue-signalling multi-millionaires signed an open letter to that effect. There’s nothing to stop them dispatching a cheque now. In 1919, Tory statesman Stanley Baldwin anonymously gave £120,000 (£6million in today’s money) to the Treasury to pay off war debt.

GIVEN the hole we’re in, the idea of soaking the rich, or even the fairly rich, may seem alluring. Every day one hears someone say we need a radical redistribution of wealth after all the tribulations of Covid-19. We can’t, so we are told, return to our bad old ways.

Could a Conservative chancellor turn out to be more Corbynista than the Corbynistas? Might Rishi Sunak follow the example of former Labour chancellor Denis Healey, who promised in 1974 to ‘squeeze the rich until the pips squeak’?

I hope not. I don’t think so. But I don’t believe we should rule out the possibility that Mr Sunak, in a desperate attempt to balance the books, will bear down on the better off with a ferocity never before shown by a Tory chancellor.

This would be a disaster. There are several reasons, some practical, others philosophical, why asking the rich to pick up the tab for the pandemic would be a very bad idea.

In the first place, there simply aren’t enough rich people to go round. Take the example of capital gains tax.

If the Chancellor lowered the annual tax-free allowance on capital gains of £12,300, or raised the top rate on property sales from 28 to 40 per cent, he might conceivably augment the overall tax take by a billion or two.

Or he might not. Putting up a tax sometimes leads to less revenue, as former Tory chancellor George Osborne discovered after he raised the rate of stamp duty on some house purchases in 2014. The effect of that ill-judged measure was to slow down the property market, and reduce tax receipts.

Any idea that a wheeze dreamt up by the Office of Tax Simplification in respect of capital gains tax could even fractionally address the country’s problem of mounting debt is extremely far-fetched.

What about a wealth tax? Here let me quote no less an authority than the aforementioned Denis Healey. Before the 1974 general election, Labour promised to introduce a wealth tax. After achieving power, it gradually abandoned the idea.

This is what Healey wrote later: ‘ We had committed ourselves to a wealth tax: but in five years I found it impossible to draft one which would yield enough revenue to be worth the administrative cost and political hassle.’

Some people point to Norway, where there is a wealth tax payable on assets worth more than £125,000 excepting a main home. Yet according to the Organisation for Economic Cooperation and Development, the wealth tax in the country raises less than 1.5 per cent of total annual tax revenues.

Hardly a panacea, then. The truth is that wealth taxes such as exist in Norway and other places don’t produce spectacular sums of money capable of transforming the public finances. My advice is not to believe crazed Leftwing academics who may suggest otherwise.

Would raising income tax for the wealthy have a better effect? Before the December 2019 election, Labour proposed a new 45 per cent income tax rate starting at £ 80,000 a year, and a 50 per cent rate kicking in at £125,000. These were rightly regarded as swingeing increases.

Yet they would have brought in relatively little money. According to the independent Institute for Fiscal Studies, ‘a reasonable central estimate for the revenue [that would be] raised was around £3billion per year, but it is also plausible that it could raise £6billion, or that it could reduce revenue by £1billion.’

The fact is that, much as some of us may like to hate the rich, there aren’t enough of them to bail out the country from its present economic predicament, however many new taxes are dreamt up.

What such taxes would probably accomplish, however, would be to drive away some wealth creators to other countries, or to induce them to work less hard. In other words, soaking the rich, although it would not even begin to rescue the Exchequer, would almost certainly have the effect of depressing economic activity.

Does Rishi Sunak know this? Of course he does. I’ve no doubt Boris Johnson does, too. But when you are faced with eye-watering debts, and siren voices are advising you to bash the well-off, it’s easy to panic and set aside core beliefs.

The Government will not be able to tax its way out of this crisis. That axiom extends to the not-so-rich, of whom there are many more millions. The worst possible thing for the Chancellor to do now would be to slap higher taxes on ordinary taxpayers. It would be tantamount to placing a lead weight on an invalid tottering back towards normality.

THE ONLY way to get out of the mess we’re in is to fire up the economy and to encourage entrepreneurship. In the short term, at least, that is much more likely to involve tax cuts than tax increases.

Mr Sunak got that message last week when he announced a temporary stamp duty exemption on the first £ 500,000 of all property purchases, and a reduction in VAT from 20 to five per cent on food in restaurants, pubs or cafes, accommodation and tourist attractions.

Only economic growth at a rate we haven’t seen in recent years can produce the tax revenues which will enable this country to pay off its spiralling debt. Clobbering the better off, and increasing taxes for overstretched ordinary taxpayers, will merely succeed in killing the goose that lays the golden egg.