Rachel Reeves has been warned a ‘fantasy’ wealth tax would only succeed in driving away investors from Britain.
Alarm is growing about Labour targeting entrepreneurs as the government frantically tries to balance the books.
Ministers have been stubbornly refusing to rule out the prospect of a levy on multi-million pound assets, with Transport Secretary Heidi Alexander dodging during interviews this morning.
However, tax experts and economists have pointed to the example of Spain, where a similar policy brought in a fraction of what had been hoped.
Billionaire John Cauldwell, who switched to back Labour at the election, has become the latest business figure to voice concerns.
At the launch of report from his charity Caudwell Youth, the Phones 4u founder said he would be ‘very in favour of a wealth tax if it was global’, according to the Guardian.
But he warned that changes to inheritance rules together with increases to the minimum wage and employers’ national insurance had already made the position difficult.
‘I think you can do some of those things, but you just can’t do everything,’ he said.
‘You introduce a wealth tax on top of that and it just isn’t going to work. I know people that are leaving as we speak. They’re going to Monaco, they’re going to Dubai…
‘I want to influence rich people to do more philanthropically and to pay taxes. A wealth tax would be very destructive on top. I don’t say that because I’m trying to protect my money – because I’m giving it away.’
Although the scale of the black hole Ms Reeves will need to fill at the Autumn Budget could still change, analysts believe it is as much as £30billion.
The Chancellor seems to be backed into a corner as she is adamant about sticking to her strict fiscal rules on borrowing.
She has also said Labour will keep the manifesto pledge not to hike taxes on income tax, employee national insurance or VAT.
But experts have suggested that the stalling economy together with spending pressures could mean she has a £31billion funding gap to fill at the Autumn Budget.
The respected IFS has warned the tax increases might even need to be on a similar scale to the record £41billion hike in the burden imposed last year.
Lord Kinnock, who led Labour between 1983 and 1992, fueled speculation at the weekend by suggesting ministers were looking at a two per cent levy on assets worth more than £10million.
He said the move could raise up to £11billion a year and be popular with a ‘great majority of the general public’.
Left-wingers and unions have lined up behind the idea, as they knock back tentative efforts to curb spiralling benefits costs.
However, the Tories warned that there was already an alarming exodus of wealth-creators from Britain thanks to Labour’s policies – and the only people who would suffer from the raid would be the least well-off.
Ms Reeves previously said she was ‘not interested in a wealth tax’, and Downing Street stressed the government had already taken steps to make sure those with ‘broadest shoulders’ pay the most.
But the PM’s spokesman stopped short of completely ruling the step out yesterday, arguing that announcements would only come at the Budget.
Asked if a wealth tax could happen, Ms Alexander told LBC this morning: ‘I think fairness needs to be the guiding principle in the way we approach decisions around taxation… this government will always take decisions in the national interest’
Tax lawyer Dan Neidle told the Times that the suggestions were ‘fantasy politics and impossible to take seriously’.
‘Wealth tax advocates talk about everything except the actual wealth taxes that have existed across the world. Almost all raised a pittance, hit the middle class more than the ultra-wealthy, and were abolished,’ he said.
Lord Macpherson, a former Treasury permanent secretary, said wealth taxes were ‘great in theory but never work in practice’.
‘Why would a government which has almost certainly lost revenue on its non-dom reforms open up a new front on footloose billionaires? It would lose revenue, and is no substitute for taxing income or consumption,’ he said.
