There are few issues which animate both the super-rich and the political Left more than the notion of a wealth tax. The idea has been championed by the French Left: a 2% levy would be levied on the roughly 0.01% of household assets worth over 100 mn. Euros. Britain’s Green Party has also adopted it as a signature policy. There is a global version of the same idea promoted by Brazil’s President Lula.
For populist politicians, a wealth tax has a double appeal: it can, in theory, promote greater equality and ‘fairness’, and, also in theory, raise a lot of money for public services. Theory and practice have however diverged.
A wealth tax is unlikely to be in the coming UK budget despite advocacy by Neil Kinnock, leading trades unions and others. Indeed, it is being abandoned by governments including those with a social democratic, redistributive agenda: Austria, Denmark, Finland, France, Germany, Iceland, Sweden. They found that the tax was difficult to operate, easily avoided and raised disappointing amounts. Only Norway, Spain and Swiss cantons retain a comprehensive wealth tax.
Political demands for wealth taxation are energised by extreme and growing inequalities at global and national level. The world’s wealthiest man is Elon Musk, and his personal fortune appears to be around $500 billion. He has recently negotiated a pay settlement which could earn a further $1000 billion (a trillion) over the next decade: equivalent to the combined salaries of all primary school teachers in the USA.
Britain’s billionaires are almost down-at-the heel by comparison. The Forbes list identifies 55, the 10th largest number in the world, and the richest man -Michael Platt of Bluecrest Capital Management- is worth $18 billion, a little more than better-known names like Jim Ratcliffe, James Dyson and Denise Coates. By way of comparison, the USA has over 900 billionaires, China (under the Communist Party), almost 600 and India over 200. Britain’s wealth inequality is comparable to Denmark, Canada and France and far less than the USA or even Sweden.
That said, the share of the top 0.1% accounts for almost 10% of our net wealth, a share that has doubled since the mid-1980’s, whilst the 50 richest families have net assets worth more than those of half the population, many of whom have no wealth and are indebted.
So what? Defenders of wealth inequality will argue that personal wealth is the consequence of wealth creation from which we all benefit as a society. How else are innovators to be persuaded to take all the risks involved in founding and then developing a business?
Those are genuine concerns. We do need wealth creators. But that is not an excuse for extreme inequalities of wealth. First, the very wealthy can distort the democratic process through political donations to protect and amplify their wealth as we can see with the brazen greed of today’s American oligarchs. Second, much personal wealth is not earned through risk taking and innovation but through inheritance, passive investment, or property inflation. And extreme inequalities, with rewards unrelated to risk, destroy any sense of a wider social contract.
Taxation should correct some of these imbalances. There are already partial wealth taxes – inheritance tax, capital gains tax mainly- and progressive taxes on salaried and investment income. But the very wealthy have access to advice and techniques to minimise liabilities: exploiting loopholes and international arbitrage opportunities. Dubai beckons. The very wealthy almost certainly pay lower rates of tax than many people of modest means.
Would a comprehensive wealth tax help? With difficulty. Some assets like jewellery are difficult to value and easy to hide. Stocks and shares fluctuate in value daily in public markets and much wealth is in private, unlisted, companies. Tax authorities do not have the necessary data and skills to value complex portfolios – though the Register of Beneficial Ownership which I introduced as Secretary of State makes data on the wealthy more transparent.
For the very rich, such a tax is a hassle rather than a burden -liquidating assets to pay the taxman annually – and many would easily switch their tax domicile. The Swiss wealth tax, levied by the cantons, is the only one which appears to work – raising 5% of Swiss tax revenue. It works because the rates are very low: well under 1%. The hassle of avoidance exceeds the hassle of paying it.
An alternative approach is to focus on assets which can’t migrate overseas or be easily hidden, and which play no role in promoting innovation and economic growth. High value property is the most obvious candidate. That is the logic behind the so-called ‘mansion tax’, first advocated by the Lib Dems either in the form of an annual levy for properties above a threshold of, say, £1.5 million or by creating additional tax bands in the council tax system.
Rachel Reeves’ budget will contain a version of this idea. There will be howls of protest from party donors and some voters. Protests will centre on the asset-rich and income-poor though there is a simple solution in the form of equity release products which convert capital to income. And those who under-occupy family sized houses (like me) will have an incentive to down-size, freeing up property for families. What is not to like?
* Sir Vince Cable is the former MP for Twickenham and was leader of the Liberal Democrats from 2017 until 2019. He also served in the Cabinet as Secretary of State for Business, Innovation and Skills from 2010 to 2015.
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24 Comments
So, if someone owns a house with several acres of non productive land in the country worth £5M they should pay a wealth tax, but if the house and land are a farm they should avoid a wealth tax?
Just asking in light of Liberal Democrat policy towards inheritance tax which would treat farm businesses worth £5M differently from other businesses worth £5M.
@Jenny. Absolutely. We need farms, we need food. What we don’t need is farmers being forced to sell land and it going to rich people who then take it out of food production.
“What we don’t need is farmers being forced to sell land and it going to rich people who then take it out of food production.”
We also urgently need land for housing, for leisure, for (cheap clean locally produced) renewable energy and for biodiversity/carbon sequestration/conservation. Some of these are incompatible with food production.
People are going to have to make choices.
The problem with the Mansion Tax Vince refers to is that it only applies to properties that are individually above the threshold, and I think it was only for residential properties as well.
Meaning wealth tied up in other types of property or in the ownership of lots of properties under the threshold but which combined are well over it, will escape the tax.
This makes it a very inefficient substitute for a wealth tax.
This also means the threshold has to be set so low that it comes into the range that some middle class folk think they can aspire to have, making it politically less palatable.
A better policy would be a tax on the total value of all property owned by both individuals and companies, perhaps with a threshold of 5m.
Ideally this would be combined with a land value tax as well.
A property tax would ensure that none of the properties value escapes taxation, including increases in value.
But adding LVT will provide an incentive to improve the property (eg through construction) since doing so would see only one of the two taxes would go up in line with the value increase, thus reducing the overall effective tax rate on the property.
@Tristan Ward
“We also urgently need land for housing, for leisure, for (cheap clean locally produced) renewable energy and for biodiversity/carbon sequestration/conservation. Some of these are incompatible with food production. ”
Indeed. But the country struggles to produce a decent food supply, leaving it very dependent on markets.
Is it right to spread solar panels over large areas of countryside which are suitable for agriculture? e.g. Cleve Hill in Kent which has been feature in local TV news this week.
https://www.clevehillsolar.com/
It might be possible to graze some sheep around the panels but it seems to me there are far more suitable places for solar panels – e.g. on top of buildings in retail parks.
@Cassie
So then, what is being proposed is not a wealth tax but a tax on certain forms of wealth.
£5M of wealth in the form of a productive farm avoids a wealth tax – I trust £5M of wealth in the form of a productive factory will also not pay the wealth tax.
Let’s just call this a high Value Housing Tax, and be honest about it.
Taxing one particular type of wealth will inevitably result in the rich rearanging their portfolios. Taxing all kinds of wealth requires regular evaluation of assets whose value is purely subjective. Investment income (including capital gains) is directly related to wealth. Even at a nominal flat rate, it would be paid at a higher rate by the rich since they get higher returns on their investments. Merging NI and CGT into income tax is a no-brainer.
LVT isn’t a wealth tax, it’s a resource tax. Unlike most taxes, it produces no descrease in supply. Even with a high level of LVT, The country wouldn’t get any smaller.
Let us assume that we don’t want to stop food production and all starve, because the UK already imports far too much of the food we consume. And in the event of conflict it would be easy fora hostile power to cut off our imports (we no longer have naval vessels able to protect even a fraction of the necessary convoys). OK, so some of the non-agricultural land can be used for adequate housing and amenities. But in general we cannot afford to take agricultural land out of use.
And most urban dwellers do not appreciate how low a return many family farms receive in order to live on. Many farmers are (theoretically) asset rich but income poor. In upland farming in particular the return is often just 1% – 2%. Meaning a farm with land valued at £1 million generates a family income of just £10,000 to £20,000 per year to live on. And that’s with family members working 12 – 16 hours a day, every day with NO days off throughout the year (livestock need tending 365 days a year!). Yes, there are rich landowners with high incomes – but they form a minority.
@Nonconformistradical
“the country struggles to produce a decent food supply, leaving it very dependent on markets.”
The UK is about 66% self-sufficient in food (compare 33% at the outbreak of WW2 and 44% at the end).
To become more self sufficient we have to accept the following:
1 – food prices increases – probably significantly;
2 – diets would be more limited (including less meat);
3 – more use of pesticides, at least until
4 – genetic manipulation of crop plant builds in resistance to pest and disease;
5 – more use of artificial fertilizers (increasing the pollution burden on rivers) at least until
6 – genetic manipulation of crop plants enables plants to manufacture their own usable nitrogen (as legumes do already) and
7 – genetic manipulation allows plants to metabolize more efficiently and productively
8 prevention of change of use of land for pretty well any other purpose that prevents agriculture.
I doubt it will happen absent significant population decline, and I bet the NFU thinks its unachievable too.
@ Rif Winfield,
“Meaning a farm with land valued at £1 million generates a family income of just £10,000 to £20,000 per year to live on. And that’s with family members working 12 – 16 hours a day, every day with NO days off throughout the year”
I’ve seen this argument before and I’m sure you are right.
We, therefore, have is a system which is offering a financial reward for farmers to sell up . Why take 1% when it would make sense to cash in and either buy another type of business or just take the money and live off the interest.
As you say “… we don’t want to stop food production and all starve”
We’re probably fortunate that most farmers don’t take the rational economic view; but, we can’t rely on this indefinitely.
What is your solution?
” there are far more suitable places for solar panels – e.g. on top of buildings in retail parks”
I’d be delighted to have more roof top solar panels (*) but consider:
We need cheap, clean locally produced energy fast.
We need it clean and fast because time is running out to keep the climate stable.
We need it cheap because social justice demands it and industry/business needs it to be competitive and profitable.
We need it local because we’d prefer us and the world not to have to depend on Trump (+), Putin and the middle east for energy. Incidentally our economy would be just as crippled by lack of cheap energy as it would be by lack of cheap food.
I doubt panels on roofs easily satisfies the cheap and fast criteria. Retro-installation probably can’t be done on a one-size fits all basis (roofs are of different sizes – therefore bespoke schemes means more expensive and slower ) and in very many cases the freeholder has to get consent from tenants which adds costs and time as well..
It’s said 1% of UK land is needed to produce the solar coverage required. Industrial and residential roofs will contribute a bit – it’s already happening and the more the better – but not much.
@Tristan Ward
“diets would be more limited (including less meat);”
Would easting less meat be a bad thing?
“more use of artificial fertilizers (increasing the pollution burden on rivers)”
Is the pollution inevitable or might it be the result of sloppy agricultural practices?
“We, therefore, have is a system which is offering a financial reward for farmers to sell up”
Agricultural profitability say £70-100 per acre. Solar farm rent c£1,000 per acre.
Prioritising food production isn’t a good idea for the UK. As an internationalist party we should be advocating the benefits of globalisation.
The UK can import food from countries that produce it more efficiently due to better climates, lower labour costs and better economies of scale.
Nobody has a right to be a farmer. Farmers aren’t charity cases and they’re not doing charity work for the rest of us.
The reason we’ve been sucked into opposing the so called family farm tax (along with ironically the greens) is because we represent rural constituencies and its our version of populism.
“Would easting less meat be a bad thing?”
As a good liberal, and all other things being equal (which if course they never are) I think people should be able to make their own moral choices. In practical terms I think politically enforced veganism/vegetarianism is a non-starter at the moment.
“Is the pollution inevitable or might it be the result of sloppy agricultural practices?”
My gut feeling is that careful use of fertilizers can reduce pollution by fertilizers but not eliminate it. Pollution levels have been more or less flat over recent years despite increasing awareness. Sloppy practice” is bad thing and the Wye poultry scandal needs to be dealt with fast. The key factoid is that 70% of river pollution by nitrogen is agricultural run off with most of the rest sewerage.
See this House of Lords report published in the summer: https://publications.parliament.uk/pa/ld5901/ldselect/ldenvcl/161/16102.htm
I agree with Vince and @David La Grice makes very good points.
I was however dismayed to see Daisy Cooper on Politics Live argue against a Mansion Tax.
Not Labour’s version of a mansion tax which they will no doubt mess up. She argued against the principle of a mansion tax, saying it will unfairly hit people who are asset rich and cash poor. I found it very difficult to deliver leaflets after seenig that. Who is she representing? Liberal Britain or the elderly voters in rural consituencies that currently happen to vote for us?
@ Richard Treadwell “Who is she representing ?”
St Albans, Richard.
@Tristan Ward I agree people must be able to make their own choices around meat consumption but at the moment the British state subsidises the practice. According to ‘End meat subsidies’ £1.5bn a year goes to the UK meat industry. This reduces the retail price of meat and creates a perverse incentive for Britain’s to eat more meat.
The policy inertia in this area is purely shaped by long standing cultural bias and should be opposed by a progressive party.
@ Richard Treadwell
“This …. creates a perverse incentive for Britain’s to eat more meat.”
“The policy inertia in this area is purely shaped by long standing cultural bias ”
These are certainly values laden statements and not entirely consistent with people making their own moral choices.
I’d prefer to go without subsidies too but on the liberal grounds that they distort the market. To add a value laden statement of my own, cheap food is a good thing, all other things being equal.
Who is [Daisey Cooper] representing? Liberal Britain or the elderly voters in rural constituencies that currently happen to vote for us?
Are the people who vote for us not “Liberal Britain”? I’m confused.
Push this argument to its conclusion and it seems we should be actively persuading people not to vote Lib Dem.
@Tristan Ward
“Are the people who vote for us not “Liberal Britain”? I’m confused.”
I’m sorry but they’re not. We offered a Tory removal service for people that wanted to see a labour government. The British are remarkably astute when it comes to tactical voting. In the last election our model was simply to not offend and it worked to great effect. Arguing against a mansion tax that would offend our current voter base is simply a continuation of this strategy. But its not a good strategy anymore due to Labour’s unpopularity.
Now we must set out our own strong liberal agenda and let a new type of voter come to us. National vote share matters.
Tristan, a good while ago when I was a party member and he was a frontbencher, I asked Ed Davey a question about whether it would be liberal and democratic we should be pursuing an approach to policy making that involved the general public more and allowed the public consensus to shape both our policies and the policies of councils we run.
Somewhat to my surprise he struggled to answer at more than a facile level and I think I’d (not my intention) blindsided him. I do think the party is struggling at the moment to reconcile its liberalism and its democracy.
@Matt (Bristol)
“I do think the party is struggling at the moment to reconcile its liberalism and its democracy.”
Indeed! Following the public consensus might require (eg) us to cut taxes and increase public spending. Not to mention being nastier to immigrants.
I think the issue is that the public is demanding a bit less social liberalism and a bit more classical liberalism. We ought to be able to deliver that. (*) If we fail I suspect we will end up with a Reform led government with or without the survival of the Tory party.
(*) The latest Liberator has arrived. There is a review of the Liberal Democrat History Group’s new booklet -“Liberalism – the ideas that built the Liberal Democrats”. I quote from the review:
“This pamphlet is particularly good on the differences between economic liberalism and social liberalism but reminds us what they have in common. On this distinction it rejects absolute opposites and argues all Liberals find themselves on a spectrum between the two.”
Vince, This extreme inequality of wealth needs urgent fixing because within the last 40, or so years wealth and power is being accumulating into a very small elite or oligarchs.
I thought Liberal democrats would agree that a wealth tax would only be applied to personal wealth in excess of, say £10 million of say 1% per year. This is a figure given by economist Gary Stevenson.
Companies have their own taxation regime; Such will tend to be run by partnerships or boards will have many shareholders. Even in this case wealth between shareholders are not distributed equally.
Looking into Annual Reports of FTSE companies you can see institutions and extremely wealthy individuals (the richest 5% owning 80% of shares and that 95% of individual shareholders have collectively only 10% of share capital.
This is why we need redistribution of personal wealth of in excess of £10 million.
We need to avoid Monopoly Capitalism otherwise we will have a feudal society.
Let’s build a more Egalitarian capitalism along the lines suggested by the Share foundation’s Gavin Oldham: A population of shareholders.
This is will distribute wealth and power more fairly to public hands giving individuals choice in where they want to invest and direction.
Centralisation and Monopoly capitalism will and continue to make bad decisions.