War on wealth is dangerous and immoral

It would be a mistake for the Chancellor to join the trend for punitive taxes targeting private capital

Anyone with a nest egg, a comfortably sized home or a successful business should by now be feeling a little nervous about the first proper Budget of the Johnson Government. There are rumours of a mansion tax on high-value properties, as well as curbs on Entrepreneurs’ Relief for company owners and a raid on pensions. The Chancellor has been instructed to open the spending spigots, and private wealth could be marshalled to pay for it.

It may or may not happen. But if it does, it will only be part of a global trend. In the US, the Democratic presidential contender Elizabeth Warren has picked up a lot of support for her planned wealth tax of 2 per cent on fortunes of more than

$50 million. Trendy economists everywhere are arguing that tax will have to shift from income to wealth. They claim it is the cure to every imaginable ill, from inter-generational inequality to the apparently spiralling fortunes of the super-rich.

But hold on. Yes, we can understand that some people are left behind, and that some assets such as houses have become very hard for many people to afford. But we should be defending wealth, and working out ways to create more of it, rather than declaring war against it. Why? Because inequality is not the problem it is sometimes made out to be. And, from funding old age to creating new firms, wealth is vital for society. The more we attack it, the more we will all lose.

There are several major problems with wealth taxes. The first is a moral one. By attacking “wealth”, we are often effectively taxing people twice or three times. Why? Because they already paid taxes on the money they saved to create that capital. On top of that, it breaks the very concept of private property. In the world of mansion and wealth taxes, everything is effectively owned by the state and we have to pay an annual fee to use it.

They are also a draconian solution to what turns out to be a non-existent problem. Sure, there are some very rich people out there. But that is because a combination of globalisation and technology has made it possible to create huge businesses very quickly. The 10 richest people in the world, led by Amazon’s Jeff Bezos, are all selfmade. Of the 2,604 billionaires in the world, 55 per cent are self-made, according to a calculation by Wealth-x. Inherited money is not that common and usually doesn’t last very long. A few people are rich because they have created incredibly successful firms – but we all benefit from that.

Next, private wealth matters more to society than we often appreciate. It is where the seed capital for new companies comes from. We have been writing reports since the 1890s on how to get the City to fund entrepreneurs, but the truth is the banks never get any better at it. Most small businesses get their first break with a loan or an investment from someone within the family. Break that, and we won’t have the new companies that create almost all the new jobs.

Wealth is also how we look after ourselves in what will be an increasingly lengthy old age. Most people will support themselves through their nineties with the capital follow Matthew Lynn on Twitter @mattlynnwriter; read more at telegraph.co.uk/ opinion built up over a working life – indeed there are increasing worries that “Generation Rent” won’t have enough to look after themselves and will end up as a burden on the state.

True, we have problems with the way wealth is distributed across society. Houses are way too expensive in the UK, but cheap money and ridiculous planning restrictions have made that an issue. We could fix it by simply building more. Some regions have been left behind, not so much because they are doing badly, but because London, with its unique blend of finance, technology, culture and power, has become a hyper-rich city economy with few equals anywhere in the world. But we can fix that by allowing London to expand so more people can share in its powerhouse economy, and by letting Leeds, Manchester and Bristol follow its lead, rather than by hammering it into submission.

So, yes, we should be working out how we can spread wealth more evenly across the UK. But surely the key to that is creating more of it, especially in the places where it is most needed – and we will do that with deregulation, lower taxes and more entrepreneurship, not through a misguided war on wealth.