Rishi Sunak has rejected a proposal for an emergency wealth tax to recover the £280billion the Government has spent so far on the coronavirus pandemic.
The Chancellor was presented with plans for a one-off levy on those with assets of more than £500,000, or £1million for a couple, including their family home and pension.
But Mr Sunak has told allies that he has ruled out the suggestion because he believes it would be ‘un-Conservative’ and go against the party’s aspirational values.
However, he is still considering proposals to raise tens of billions from the better-off by sharply hiking capital gains tax.
The Wealth Tax Commission last month proposed a 5 per cent levy on housing, pension, business, equity and savings wealth that it forecast would raise £260billion.
Rishi Sunak, pictured, was presented with plans for a one-off levy on those with assets of more than £500,000, or £1million for a couple, including their family home and pension
The tax would apply to every UK resident with assets of £500,000 or more and would include homes excluding mortgage debt.
About one in six adults – 8.2million people – would be liable, but the tax would largely fall on older generations who have paid off more of their mortgages and built up larger pension pots.
Almost 40 per would be aged over 65, while just 6 per cent would be between 35 and 44 years old.
The Commission recommended households pay the levy at a rate of 1 per cent a year for five years.
Sunak, pictured, has told allies that he has ruled out the suggestion because he believes it would be ‘un-Conservative’ and go against the party’s aspirational values
It estimated up to 10 per cent of those affected would be ‘asset-rich, cash poor’ and not have the ready money to pay for it.
'Covid hole in economy is much smaller than feared'
The economy fared much better than expected during the November lockdown, triggering predictions that a ‘vigorous rebound’ is on the cards.
Output, or gross domestic product, contracted by 2.6 per cent in November, the Office for National Statistics said.
This would still be a large fall during normal times, but is much smaller than the predictions of 5 per cent.
And while it was the first time the economy had shrunk since April in the depths of the first lockdown, November’s decline was a fraction of the 18.8 per cent slump recorded that month. At the end of November, the economy was 8.5 per cent smaller than its pre-virus size. Ruth Gregory, an economist at consultancy Capital Economics, said the ‘Covid-19 economic hole’ is now ‘far smaller’ than anticipated.
She said GDP could return to its pre-virus as soon as the first quarter of 2022, and that even late this year is ‘plausible’.
Dean Turner, an economist at the wealth management arm of banking giant UBS, said that businesses were now more resilient to lockdowns, adding: ‘We remain confident that pent-up demand will drive a vigorous rebound as restrictions are eased, most likely from the second quarter onwards.’
For those people, it suggested smaller payments for a longer period.
Lord O’Donnell, a former head of the Civil Service, said in the report’s introduction: ‘It is broadly accepted that if the Prime Minister is to stand by his promise not to return to austerity then taxes will eventually have to rise.
This will mean breaking another manifesto commitment. Or it means thinking seriously about new taxes.’
Lord O’Donnell argued that governments have made ‘radical changes to taxes when there has been public understanding that change is needed’.
Public sector debt is now £2trillion-plus, more than the value of the whole economy, and from April to November the Government borrowed £284.7billion to cover the gap between spending and revenue.
This is three times the previous high since comparable records began in 1984.
Other ideas thought to be under consideration by Mr Sunak, who will present the next Budget in March, include raising capital gains tax (CGT).
CGT is charged on the profits made from selling investments not held in a tax-free account such as an ISA.
Entrepreneurs often pay it when they sell a stake in their business to expand it, or pass it on to new owners.
It is charged on profits of more than £12,300 at ten per cent or 20 per cent depending on the seller’s overall income.
The Office for Tax Simplification has suggested cutting the tax-free sum and aligning CGT rates with income tax bands of 20, 40 and 45 per cent.
The Institute for Public Policy Research think-tank estimates that this could raise an extra £90billion over five years.
But entrepreneurs have argued that the UK could lose much more in the long term as businessmen take their ideas overseas.
There have also been calls for the stamp duty holiday to be extended beyond its deadline of March 31.
But a Treasury source said: ‘The Chancellor announced this as a time-limited stimulus. There is no point in doing something time-limited if you extend it.’