Chris Perry is absolutely right to suggest in Lib Dem Voice that ‘Widening income inequality and increasing poverty are the great social evils of our time.’ But part of addressing the issue has to involve imposing an additional tax ‘burden’ on the very rich.
In the run-up to the General Election last year Ed Davey defended the Lib Dem proposal to raise an extra £5.2bn from capital gains tax, with a new rate of 45 per cent for gains of more than £100,000:
Most people will pay the same or less. If you are very, very wealthy — 0.1 per cent of the population — you will pay a lot more tax. Multimillionaires and billionaires will pay a lot more.
More recently, Lord Kinnock, who was Labour leader from 1983 to 1992, suggested that imposing a 2% tax on assets valued above £10m would bring in up to £11bn a year.
The refusal of Keir Starmer to rule out a wealth tax in Prime Minister’s Questions on Wednesday, July 9th (whereas Rachel Reeves did rule out such a tax in 2023 before Labour came to power) suggests that it is at least being seriously considered by the government. It should be.
Opponents of such a tax stress that ‘wealth creators’ should be encouraged, not discouraged (but they will still keep huge amounts of money – and not all of them created their wealth), that if they are subject to higher taxes, they will flee the country and apply their talents elsewhere (Really? So all CEOs want to live in the USA?) and that if they are taxed too highly, they will find ways of avoiding tax altogether (they already do – which is why the Lib Dem manifesto last year put so much emphasis on dealing with tax evasion). It’s even been argued that cutting taxes on the very rich will supercharge the economy and lead to increased growth which can then be spread to all. Trump’s ‘Big Beautiful Bill’ uses this argument, and we will see where that leads him when people cease to be distracted by his foreign policy ‘initiatives.’ Liz Truss tried it three years ago with her own tax-cutting budget. And we saw where that led her. It spooked the markets and effectively ended her tenure as Prime Minister.
Yes, there are plenty of arguments about how you define the ‘super-rich’ and how you tax them. But three things make it essential that such a measure is introduced. The first is the growing inequality in our society. Financial Times data in 2022 showed that the poorest 5% in the Czech Republic, for instance, were richer than the poorest 5% in the UK, while the top 3% in the UK soared far above the top 3% in the Czech Republic – hardly surprising when the Sunday Times Rich List in 2023 showed that the UK was now home to 171 billionaires.
The second reason is that this growing inequality comes largely from the increasing financialisaton of the economy, something that is not likely to go away. Half a century ago banking was seen as a sleepy industry in which people worked ‘bankers’ hours’ when branches (which banks had in those days!) opened at around ten and closed at around three. The banker was a staid character working short hours and making a decent living but nothing special.
That all changed over the next fifty years. Investment bankers worked punishing hours for large amounts of money. Meanwhile finance’s share of GDP went up and bank regulation was loosened. New financial institutions and instruments followed (the ‘instruments’ often almost impossible to understand) and even though they funnelled money into various disastrous projects like the housing bubble which caused the financial crisis of 2008, they also made – and make – many people extremely rich. Something like half the new billionaires that have emerged since deregulation have come from the financial sector.
The third reason for supporting a further tax on the very rich is that it will boost growth. This is because those with very large amounts of money spend less of what they have than those with relatively little. If, for instance, the proceeds of a wealth tax were to be used to raise tax thresholds or to pay a decent wage to carers, then those who benefited would spend most of what they received. Rachel Reeves seems to think that redistribution should be a result of growth. She’s getting it all the wrong way round. Growth would be a result of redistribution. Redistribution is not just an ethical imperative – it makes economic sense.
Though it’s unfair to suggest that people are simply formed by their background, Ed Davey’s involvement in the care sector probably makes him more aware of the need to deal with excessive inequality than Rachel Reeves with her background in the banking sector. Meanwhile, Keir Starmer hovers in the eternal position of fence-sitter, shuffling to and fro as he wonders how he can sit comfortably. Hopefully, the Lib Dems can give the fence-sitter a nudge in the right direction.
* Mark Corner is a UK national, who teaches economic history and philosophy at the University of Leuven, is married to a Czech EU official and lives in Brussels. He has just published A Tale of Two Unions suggesting that Brexit may damage the British Union unless the UK becomes more positive about the way the European Union is structured.
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14 Comments
What lessons do you draw from all the other countries that have attempted wealth taxes and not raised any extra revenue from them?
Oh dear. Virtually every country which has tried a wealth tax has dropped it because they don’t work. There are huge valuation difficulties, rich people are highly mobile and once introduced the rates would inevitably rise.
Nor is it correct that : “Something like half the new billionaires that have emerged since deregulation have come from the financial sector.” as a cursory look at the Sunday Times rich list will show.
The IFS say ” It is difficult to make the case that an annual tax on wealth would be a sensible part of the tax system even in principle. Taxing the same wealth every year would penalise saving and investment. ” https://ifs.org.uk/articles/wealth-tax-would-be-poor-substitute-properly-taxing-sources-and-uses-wealth
Most elite wealth is structured across jurisdictions, protected by legal instruments, and deferred indefinitely. It does not sit in a form that can simply be taxed. It is abstracted, fragmented, and engineered to avoid traditional liability — not through evasion, but by design. It is not being hidden. It is deliberately unreachable.
Therefore attempts to tax this kind of capital tend to fail not because of noncompliance, of exile, but because the wealth itself no longer resides in one place, has no singular form, and no stable legal owner. Without highly unlikely international coordination and a fundamental redefinition of what counts as taxable wealth, these proposals remain symbolic.
” other countries that have attempted wealth taxes and not raised any extra revenue from them”
“Virtually every country which has tried a wealth tax has dropped it because they don’t work.”
The super rich can afford lobbyists to make these kinds of arguments. They don’t like them and naturally don’t want them to work.
The council taxes that we all pay are a form of wealth tax. We pay more if we own a bigger house even though council services are pretty much the same for all households. So there is no reason in principle why we can’t have wealth taxes on mansions, second homes and land. That would be a good place to start.
Land and mansions aren’t easily moved!
Just a comment on the ‘marginal propensity to consume’ argument that underpins the assumption that a wealth tax would boost economic growth. While it is true that the super rich consume a smaller proportion of their incomes than those on low incomes, don’t forget that the super rich tend to spend heavily on investment.
I would be interested to know which countries have tried a wealth tax and abandoned it. Does the list include Sweden and France? I also wonder why we don’t follow the example of the United States in taxing earnings worldwide. That seems to work well for them and is a condition of being a US citizen. Of course some people (Boris Johnson being a case in point) settle their tax bills and give up US citizenship but I suspect not very many. US tax payers living in the UK have to pay UK tax first and then are allowed to declare that to the US authorities so that it is taken into account in assessing how much US tax they should pay.
@John: There’s a lot of information about which countries have repealed a general wealth tax here: https://taxfoundation.org/research/all/eu/wealth-tax-impact/. According to that article the countries that have done so are Austria (1994); Denmark and Germany (1997); the Netherlands (2001); Finland, Iceland, and Luxembourg (2006), Sweden (2007) and France (2018). Some of those have replaced it with more limited wealth taxes that only target specific wealth – for example France now has a tax on real-estate wealth. The only OECD countries that still have general wealth taxes are Columbia, Norway, Spain and Switzerland. And this Guardian article https://www.theguardian.com/world/2023/apr/10/super-rich-abandoning-norway-at-record-rate-as-wealth-tax-rises-slightly suggests that Norway is having problems with its wealth tax causing capital flight.
“There’s a lot of information about which countries have repealed a general wealth tax here: https://taxfoundation.org/research/all/eu/wealth-tax-impact/.”
Thanks for this. It had never occurred to me that right-wing, American lobbyists, funded by rich libertarians, would oppose wealth taxes.
@Andrew: Just because an organisation has a somewhat right wing philosophy doesn’t mean what it publishes is necessarily wrong. On both sides of the political spectrum there are groups/media that seriously attempt to produce good reliable research data and also on both sides of the political spectrum there are publishers that I wouldn’t touch with a barge pole because they generally produce unreliable propaganda full of cherry-picked statistics. Tax Foundation seems to fall towards the former category, and besides, I was using it to get fairly uncontroversial data that isn’t much open to interpretation. I also quoted a report from the Guardian, which also has a strong political leaning, but I notice you don’t seem bothered about that.
If you only ever look at stuff from left-wing sources, and refuse to look at information from right-wing sources, you’re likely to end up with a very distorted view of the World (just as you would if you only looked at data from right-wing sources).
The taxfoundation report is interesting in that one country that seems to have an effective wealth tax is Switzerland – a popular place with the very wealthy who don’t appear to have been driven away by it.
But of course it would be a mistake to look at only a wealth tax in isolation. Switzerland has one, but also has a lower overall tax burden than the UK. At the other extreme, Norway has a much higher overall tax burden and does seem to be driving the wealthy away.
The UK’s tax burden is middling, so we might be able to make a modest wealth tax work. But it’s clearly wrong to assume that wealth tax must always drive the wealth away, without looking at the big picture.
Ah, magic money tree economics.
It has been 5 minutes so we must be due someone suggesting that…
“https://www.theguardian.com/world/2023/apr/10/super-rich-abandoning-norway-at-record-rate-as-wealth-tax-rises-slightly suggests that Norway is having problems with its wealth tax causing capital flight.”
Norway has more oil money than it knows what to do with. It exports a large proportion of it via its Sovereign Wealth Fund to prevent its krone becoming even more expensive than it is. So why would also exporting some of the wealth its wealthy people might take with them cause any them any additional problem?
We might want to ask ourselves if ultra wealthy people are a net benefit to us also. Parts of our cities which were once affordable to those on average incomes are affordable no longer. It’s not us who buy up expensive London flats just in case we find the Savoy is fully booked when we visit.
The wealth of our country isn’t in money per se. It is in the land, the factories, the real estate, the natural environment and the products of workers.
“While it is true that the super rich consume a smaller proportion of their incomes than those on low incomes, don’t forget that the super rich tend to spend heavily on investment.”
Keep in mind, companies recieving these investments also require consumers at the end of the day. If there’s not enough wealth with the people, public-facing businesses will fail to produce returns however much investment they might receive. The more wealth is accumulated by the ultra-wealthy in increasing asset valuations, the less there is to stimulate the market.
Most wealthy people enjoy making money, at least those who made it. And they are quite good at it as shown by their wealth. So why should they object to it being taxed at a reasonable rate? It is certainly easier for them that to create philanthropic mechanisms and probably more efficient at least to the UK. Those who inherit their wealth are different.