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There is no reason to tax wealth in the UK

Summary:
We might have mentioned this before, just the once or twice, but the reform that the UK needs is the abolition, the blowing up, of the Town and Country Planning Act 1947 and successors. This is the one reform that solves a number of problems, from how the young might afford a house, to lowering the equilibrium unemployment rate to dealing with that wealth inequality Mr. Piketty and others whine about so much.It would even solve the problem the IFS is worrying about:Rising house prices, growing wealth and stagnant earnings mean that inheritances are becoming ever more important in determining life chances and lifetime income. Relative to other sources of income, inheritances are likely to be about twice as important to the generation born in the 1980s as they were for those of us born in

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We might have mentioned this before, just the once or twice, but the reform that the UK needs is the abolition, the blowing up, of the Town and Country Planning Act 1947 and successors. This is the one reform that solves a number of problems, from how the young might afford a house, to lowering the equilibrium unemployment rate to dealing with that wealth inequality Mr. Piketty and others whine about so much.

It would even solve the problem the IFS is worrying about:

Rising house prices, growing wealth and stagnant earnings mean that inheritances are becoming ever more important in determining life chances and lifetime income. Relative to other sources of income, inheritances are likely to be about twice as important to the generation born in the 1980s as they were for those of us born in the 1960s. That trend looks set to continue.

It’s worth reminding ourselves what household wealth is actually composed of. 42% of it is pensions, a largely self-solving problem. Defined benefit pensions die with the recipients, defined contributions ones are largely consumed before death. The reason why this has grown so much as a portion of the national wealth is that we’re all living longer. That - welcome - move from a three year retirement to a 15 to 20 year one requires an increase in savings, in wealth, to pay for it. This explains a goodly chunk of Mr. Piketty’s concerns over the wealth to GDP ratio - what does he expect to happen if we do have decades long retirements?

Financial and physical wealth are about a quarter of the total (OK, 24%) and that’s entirely in line with historical numbers and portions of GDP. There isn’t a change here that requires consideration, let alone action.

Then there’s that property wealth that is 35% of the total. This is not actually in housing, as we know, it’s the value of the planning permissions attached to the piece of land that may be built upon. If we wish to reduce this inequality - we certainly want to reduce the price - then the answer is to reduce the value of those planning permissions. As no system of rationing nor allocation will ever be left alone to get on with things the answer is therefore to blow up that Town and Country Planning Act 1947, plus successors, that creates the woeful shortage and thus excessive valuations.

The increase in household wealth is a result of pensions and planning. Acknowledge the one - that it’s a sensible, desirable, reaction to longer lifespans - and solve the other and we’re done. There is no economic problem left to be solved by wealth taxation, is there?

Or, as we might also have mentioned the once or twice, government can indeed solve problems, all too often by stopping doing what it is currently doing.

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Tim Worstall
Tim Worstall is a British-born writer and Senior Fellow of the Adam Smith Institute. Worstall is a regular contributor to Forbes and the Register. He has also written for the Guardian, the New York Times, PandoDaily, the Daily Telegraph blogs, the Times, and The Wall Street Journal. In 2010 his blog was listed as one of the top 100 UK political blogs by Total Politics.

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