Richard Farleigh: Why a wealth tax won’t work
We need transparency, efficiency and long-term planning. A wealth tax won’t work, writes Richard Farleigh, a former dragon from Dragons’ Den, author, investor and serial entrepreneur.
Something is wrong. The system has clearly failed a lot of people. Approximately 43 per cent of the UK’s wealth is owned by the richest 10 per cent of households.
I grew up in the care system and spent time in an orphanage, and I’m one of 11 children.
My brothers and sisters are all working class, so yes, I understand the sentiment behind calls for a wealth tax, and I understand the passion with which activists like Gary Stevenson speak when they advocate higher taxes on the rich in the name of social justice.
But I’ve also studied economics and mathematics. I worked for five years at the central bank in Australia. And while my heart sympathises, my head – and my experience – tells me that a wealth tax simply won’t work. There’s been talk of charging two per cent on fortunes above £10 million. It sounds bold, urgent and, at first glance, fair.
But it’s the kind of policy that reflects how polarised our world has become. It’s the sort of thing Trump would do if he were left-wing. It’s emotionally satisfying but economically flawed. The first problem is practical and concerns implementation.
It’s not easy to define, identify, value, and enforce a tax on wealth. How much is a piece of art worth? An unlisted business? A farm? These things don’t sit on a stock exchange with an easy price tag. Valuing them accurately is difficult, intrusive, and expensive. It would take an army of tax inspectors and accountants to even attempt it.
Then comes the issue of liquidity. If someone owns a farm or a house worth £10 million but has little cash flow, how do they pay the tax? Sell their home? Their business? It’s not a theoretical problem; it’s very real. I was once investigated by the tax department. My taxes were in order, but it still cost me a fortune in fees. That kind of disruption, multiplied across thousands, is not just inefficient; it’s destructive.
Next is the question of behaviour. A common mistake is to calculate the revenue from a wealth tax without considering how people will react. The wealthy are, by definition, mobile. I’ve seen estimates that there are around 25,000 people in the UK with over £10 million. With the recent changes to non-dom tax relief, around 10,000 have already left.
It’s easy to imagine thousands more doing the same if a wealth tax is introduced. Plenty of countries are opening up routes for the mega-rich leaving the UK. And when they go, so does the tax revenue. And they may not come back.
I know people wealthier than me who are leaving. Just the VAT they pay each year probably funds a handful of teachers, and they don’t use the NHS or government schools. Meanwhile, countries like Portugal and Italy are offering tax breaks to attract the very people we’re pushing away.
You don’t have to like them, but you do have to consider their impact on the economy. Once introduced, a wealth tax won’t go away. Inflation will erode thresholds, and successive governments will be tempted to widen its scope. We’ve seen the same happen with inheritance tax. And history gives us plenty of warning: wealth taxes were once common, but most countries abandoned them because they were hard to implement and raised little revenue. Spain’s wealth tax brings in less than £500 million a year.
France tried one and saw capital flight. We should aim to be more like Singapore than Spain. Now, about the bigger picture. I agree that the system feels broken. But a wealth tax won’t fix the root causes. Productivity per person hasn’t grown, despite amazing technological advances. Fewer people want to work.
Social media has replaced religion as the dominant narrative, but while religion preached discipline and effort, social media often glorifies easy living. And where is the dream for young people? Home ownership used to be the goal. Now, it feels out of reach. A wealth tax won’t increase housing stock; in fact, it may do the opposite. That’s a planning and supply issue, not a taxation one.
If you want to reduce inequality, let’s start by being smarter with the money we already spend. Politicians argue about black holes and unfunded commitments, but the picture remains largely the same, whoever’s in charge: ever-increasing spending with uncertain outcomes. We need transparency, efficiency and long-term planning.
So yes, the frustration is real. The inequality is real. However, a wealth tax is not the solution. Let’s use our heads, not just our hearts.