Why a Wealth Tax is Essential if Labour are to Deliver
‘Only the little people pay taxes’ - Leona Helmsley
Source: Bright Graeme Murray website
LABOUR ARE in a pickle. A pickle of their own making of course, but a pickle nonetheless . The huge majority that the party won last July, and now apparently under threat from a surging Reform U.K., was predicated on two explicit promises: to restore public services to at least functionality after 14 years of Tory assault, and to improve working class and lower middle class living standards after well over a decade of stagnation at best and retreat at worst. Much is made of Labour’s low share of the vote at the General Election to de-legitimise its actions, but the truth is, in our newish multi-party democracy, whether the public voted Labour, Liberal Democrat, Nationalist or Reform, they were united in a desire to get rid of the Conservatives, and they knew that the Tories would be replaced by Labour: getting on for 80% of those who voted therefore have a stake in a non-Tory future for the country, and that future is defined above all else by a restored public realm.
I believe Keir Starmer’s Labour is schizophrenic at heart, which explains much of its catastrophic messaging since it was elected and some of its more bizarre decisions, seemingly calculated to annoy as many voters as possible. The King’s Speech of July 2024, which receives far too little attention from political commentators and receives very little promotion by the government itself, reveals a social democratic impulse at heart of the Labour administration - whether it is a better funded elective NHS, improved workers’ and renters’ rights, a publicly owned railway and green energy provider, higher pay for public sector workers or a commitment to devolve political and fiscal power from Westminster to a local government defined by Mayoralties, the democratic socialist direction of travel is clear. Yet within the soul of Starmer himself, and a number of his ministers, most clearly represented by Chancellor Rachel Reeves, there is a neoliberal instinct. It is as though the new government can’t quite bring itself to believe that the old orthodoxy is dead, and that its job is to dust off Wilsonian and Keynesian social democracy and to upgrade it for the 2020s. It is this instinct that is behind the witless and repetitive messaging about the “£22bn black hole” in the public finances which Reeves claimed to have “discovered”; the politically suicidal retention of the cut to the Winter Fuel Allowance on the grounds of “affordability” and the head-scratching decision to support a third runway at Heathrow which, outside the Airport itself, no one seems to want. It also explains the constant parroting of the need for “growth”, like Liz Truss on steroids, without ever explaining how this growth will be generated, or even what it is for.
Crucially however, it is the neoliberal instinct of Starmer and Reeves that explains the allegedly “ironclad” fiscal rules the government has saddled itself with and the extraordinary commitments to raise neither income tax, National Insurance, VAT or even Corporation Tax in the run up to an election defined by the public’s wish to see more government spending on public services. Hence the pickle. I argued after October’s Budget that Reeves had produced an artful financial statement that maintains those fiscal promises, but still raised over £60bn through increased taxes on businesses and increased borrowing in an effort to meet those manifesto promises already legislated for. But how much easier would it have been if Reeves had not made commitments more suited to the austerity governments of David Cameron and Theresa May, than one whose stated purpose was to repair the damage inflicted on the country by the Tories and to “restore” Britain? In fact Reeves compounded her dilemma in the autumn by promptly taking to the airwaves to apologise for her Budget and promising never to do it again, which must be a first for a Chancellor and probably one of the most politically stupid promises to make when there were over four years of this Parliament to run.
The Budget, and for that matter, Labour’s legislative programme, only scratches the surface of the rebuilding of society required after probably the worst period of governance this country has seen since before the Second World War. Social care, criminal justice, the corporate con that is the British water industry, the green agenda, and now, of course, defence, are just some of the underfunded, neglected and yet crucial areas of public policy barely touched by the Budget. Therefore, of course a Labour Chancellor (probably not Reeves) will have to find a way to raise more revenue in order to deliver the change the public voted for. If reneging on the income tax, NI and VAT promises is out of the question, at least for now, then where does the government go? The answer, advocated for many years by left wing economists and, more recently by some not necessarily on the left, is for the U.K. to introduce a wealth tax.
The American businesswoman Leona Roberts Helmsley notoriously remarked, when being prosecuted by the US federal government for tax avoidance in 1989: “We don’t pay taxes; only the little people pay taxes,” and so summed up an entire social creed on the part of the wealthy. The long-deceased Helmsley was in fact ahead of her time: over the last 20 years, the net financial worth of the hyper wealthy either resident, or domiciled in, the U.K. has rocketed, particularly since the 2008 crash and the period of Tory rule since 2010. Aided by the side effects of the quantitative easing introduced by the Bank of England during the 2010s to keep inflation low, the rich shifted their wealth primarily from taxable cash, cash-realisable possessions, stock investments and shares dividends into assets - land, property and digital assets held in offshore accounts, most safely beyond the half-hearted reach of HMRC. Whereas tax on work (income tax) increased by nearly 3.5% between 2019 and 2024, the tax on business transactions, assets, land ownership and capital transfers remained static or, in the case of Corporation Tax, was actually reduced until May 2024 when Rishi Sunak belatedly increased the CT rate to 25% from its historically low rate of 19% which pertained for most of the Tory years. This flight of the hyper rich from income earned through salaries or dividends and into speculative assets has turbo charged wealth inequality in the U.K. in an almost unprecedented way: the wealthiest citizens are no longer millionaires but billionaires. According to the Equality Trust, the richest top fifth of the citizens and domiciles of the U.K. own 63% of the country’s wealth compared to 0.8% owned by the bottom fifth. The United Kingdom is believed to to be the most unequal country in Europe in terms of wealth distribution.
Social justice is an extremely good argument for the introduction of a wealth tax, but the urgent need for the taxation of wealth and assets is derives from the requirements for the government to increase its revenues in order to re-fund public services to the level it promised and to stimulate real growth and inward investment to improve the prospects of higher paid employment and improved living standards. Growth at the scale needed to refloat a British economy and its degraded public infrastructure outside the frictionless open markets of the EU, requires far more assertive and interventionist fiscal policy than anything thus far proposed by Reeves, with her increasingly desperate chatter about her growth mission which, it is now abundantly clear, is underwritten by precisely nothing.
The options for wealth taxes were set out most persuasively by the LSE report A Wealth Tax For The U.K. published in 2022. Put simply, the main different models of wealth tax which could be introduced in the U.K. according to the report’s authors include:-
a recurrent tax on personal wealth per individual;
a recurrent tax on assets (e.g. property, land, shareholding);
a one-off tax on the basis of wealth and asset value at a point in time (this would be to obviate tax avoidance behaviours).
The LSE report recommended a one-off tax on the grounds of acceptability to the public and because to the precedent of windfall taxes on the utilities which had attracted general public support. The authors estimate at a taxable rate of 1% on cash holdings and open market value of other assets, commencing at a wealth total of £500,000 per individual, up to £240bn could be raised as exchequer revenue. This figure would dwarf the sums raised by the Chancellor so far and provide major flexibility for the government to invest productively and end the tediously repeated assertion by commentators that “there is no money”. Personally, I would favour raising the wealth tax threshold to £2m worth of cash or assets, but levy the tax at 1% of calculated wealth over two years, raising close to £150bn each of the years concerned, which would affect less than 4m citizens out of a total U.K. population of 66m people. £300bn over two years would give the government a huge contribution to restoring in year budgets (including the notorious “black hole”). It could also provide the necessary stimulus to capital projects, businesses, the Green Prosperity Plan and inward investment that would boost the growth the country needs to make good the vandalism of the the Tory years.
Naturally there would be scepticism on the part of the public as to whether this additional government revenue would be spent wisely and on the priorities that the voters want. To mitigate this distrust I would hypothecate the wealth tax to be spent on social care, criminal justice, improving water industry standards leading to progressive nationalisation, and defence. The expenditure of the revenue raised through the wealth tax could be made publicly available to any citizen on request and would be subject to annual audits to ensure value for money. In time I would make a wealth tax on cash and assets over £2m an annual tax, but at a rate of 0.5% - reducing revenue to £75bn a year, but making the funds available to recurrent public sector budgets to help rebuild austerity-ravaged public services across the board.
The rich would find this mild intrusion on their fortunes intolerable and there would be ferocious attacks on the policy from the Right, claiming that a wealth tax would force “wealth creators” out of the country, destroy jobs and kill aspiration. All self-serving nonsense of course because the one thing the hyper wealthy are very good at is gaslighting their fellow-citizens as to their essential worth and value to the economy, when in fact private sector investment in the U.K. is the lowest in the G7 and has been for years. A Labour government who last summer proudly proclaimed that those with the widest shoulders should bear the greatest burden should have nothing to do with such “arguments” and dispense with the verities of neoliberalism once and for all.
In reality, Labour have little choice. Discernible improvement to living standards, pay and public services are essential if the government is to be re-elected four years’ time. I accept that significant increases to income tax are not politically possible; increases to NI contributions and VAT are also insufficiently progressive to be a long term solution. But, in conjunction with other recurrent revenue-raising measures such as increasing Corporation Tax to the same level as much of the EU and revaluation of Council Tax (which currently disproportionately favours the better off and has not been revalued since 1991), a one-off wealth tax over two years, followed by its annual continuance at a reduced rate could provide the billions needed to deliver the government’s King’s Speech and the raft of other measures needed to make the U.K. , once again, a more prosperous, fair and contented country with a public realm to be proud of.
A wealth tax could enable the real social transformation Labour says it wants and be emblematic of the end of a worldview, in the U.K. at least, so arrogantly articulated by Leona Helmsley all those years ago.
Source: The LSE report A Wealth Tax For The U.K. by Arun Advani, Emma Chamberlain and Andy Summers.
