By David Wickham

“No, I do not believe now is the the time, or ever would be the time, for a wealth tax” Rishi Sunak, Chancellor of the Exchequer, July 2020. 

In his book, A Brief History of Equality, Thomas Picketty shows that the period 1918 - 1980 witnessed a marked reduction in global wealth inequality, particularly in Europe and North America. The global “redistribution” was the result of popular movements which, in the wake of two world wars, fought successfully for the establishment of progressive taxation to fund what became the welfare state.

Since 1980, however, this trend has not only gone into reverse but is doing so at an accelerating rate, fuelled first by the COVID pandemic and then by the war in the Ukraine. Nowhere is the re-concentration of wealth more starkly illustrated than the increases in the fortunes of the world’s billionaires who number roughly 2500 individuals. In its January 2021 Report entitled, “Inequality Kills”, Oxfam calculates that between 2000 - 2021, the world’s billionaires tripled their wealth from 4.4% to 13.9% of global wealth to circa $13 trillion. During the pandemic, their wealth increased by over $3 trillion. The increase in Jeff Bezos’ fortune alone “could pay for everyone on earth to be safely vaccinated”. Today, the wealthiest 10 billionaires own more than the poorest 40% of humanity.

Given the enormous problems facing the world - climate change, the cost of living crisis and the energy crisis - now, surely, is the time for a tax on wealth.

WEALTH TAX CHALLENGES INEQUALITY 

Very few countries have a wealth tax i.e. a tax on net wealth comprising physical property and financial assets. A wealth tax should not be confused with a tax on the transfer of wealth (e.g. Inheritance Tax) or with a tax on asset appreciation (e.g. Capital Gains Tax) or with a property tax (e.g. the Council Tax).

Calls for a wealth tax in the UK are not new. The idea was first mooted in the late 1940s by Cambridge economist Nicholas Kaldor. It was revived in the 1970s in the Meade Report which was subsequently shelved. More recently the idea has resurfaced in the Wealth Tax Commission’s Final Report published in December 2020.

In July 2020 the Commission asked a representative sample of over 2200 UK adults which tax increases they would most support if the government decided to raise taxes. The preferred option was a wealth tax starting at £1 million (41% of respondents) compared with increasing the council tax on properties over £1 million (21%), increasing income tax on all earners (7%) or increasing VAT (4%). The same report showed that the popular arguments for a wealth tax centred around fairness. The top reason was that, “The gap between rich and poor is too large” followed by, “The rich have got richer in recent years. It’s time for them to give something back”, both of which reflect a concern with wealth inequality.

The Commission’s final report concluded that a one-off, progressive wealth tax would, after allowing for tax avoidance and administrative costs, yield £250 billion payable over 5 years, about 6% of the annual tax-take of £800 billion per annum or equivalent to a 9p increase in the basic rate of income tax. The tax would apply to about 3 million people with net assets over £1 million.

Judging by other countries’ experience, £250 billion may be over-optimistic. In the few European countries that still have one, wealth tax yields range from 3.6% of the total tax-take in Switzerland to 0.6% in Spain. In France, which abolished its wealth tax in 2017 in favour of a property tax, the wealth tax used to generate about €5 billion per annum, about 0.5% of the total. Whatever the actual receipts, it is significant that the Wealth Tax Commission considers that the introduction of a wealth tax in the UK is not only desirable but also feasible, notwithstanding the ability of rich individuals to avoid paying taxes e.g. through the use of off-shore trusts to disguise beneficial ownership. More important than the actual receipts themselves, the demand for a wealth tax focuses attention on a small number of individuals who exercise enormous political power without any democratic accountability.

This lack of democratic accountability makes wealth taxes preferable to financial transaction taxes (e.g. the Tobin tax) and windfall taxes. Transaction taxes, mainly payable by banks, would add cost to normal, day-to-day financial transactions which will be passed on to consumers. Windfall taxes are difficult to impose because they are easy to oppose as “discriminatory.” In Spain, for example, both banks and energy companies are mounting legal challenges against windfall taxes “to defend the interests of shareholders”. More importantly, both taxes distract political attention away from wealthy individuals and, in particular, the lack of transparency surrounding their financial activities.

Wealth taxes will be more effective if adopted internationally because capital is highly mobile. In this context, the United States is key because it is the home of 40% of the world’s wealthiest individuals. Interestingly, Joe Biden in his most recent State of the Nation speech, called for one. All the more reason to call for a wealth tax in the UK, now.

Sources

T. Picketty, A Brief History of Equality 2022

Inequality Kills, Oxfam Report, January 2020

The Wealth Tax Commission, A Wealth Tax for the UK, Adani, Chamberlain and Summers. December 2020

The Wealth Tax Commission Evidence Paper, Public Attitudes to a Wealth Tax, Rowlingson, Sood and Tu. July 2020

OECD revenue statistics. The countries with a wealth tax are Argentina, Norway, Spain and Switzerland

World Inequality Report 2022

Calls for a wealth tax in the UK are not new. The idea was first mooted in the late 1940s by Cambridge economist Nicholas Kaldor...More recently the idea has resurfaced in the Wealth Tax Commission’s Final Report published in December 2020.