America is a supersized nightmare of inequality but the human race generally has done a woeful job of sharing wealth fairly. Europe started to see the gap between rich and poor widen in the 1980s. The Office for National Statistics says that the wealthiest 10 per cent are estimated to hold around half of all wealth in the UK. Wealth inequality is a blight. It’s blindingly obvious that sooner or later, such injustice will lead to political unrest. A world of palaces and slums is always a powder keg waiting to go off.
Labour was going to bring back fairness, but, blown off course by events, it is adopting policies that no one anticipated on the campaign trail. Desperate to balance the books in an increasingly difficult global economic climate, with defence spending to be ratcheted up considerably, constrained by having already raised taxes and her own fiscal rules, Rachel Reeves has announced further welfare cuts on top of her raid on disabled people’s benefits and the decimation of the aid budget. Today’s news was that the health element of Universal Credit will be cut by 50 per cent and then frozen.
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Labour MPs are understandably dismayed; some are angry. What is to become of the government’s child poverty targets? they must wonder. Will the hated two-child limit, which actively pushes families into poverty, ever be scrapped by this administration?
Few would argue with the wisdom of helping young people capable of working to come off incapacity benefits and into work, but benefit cuts are a blunt instrument of behaviour change. Some people will simply be hurt by them. Writing in the British Medical Journal, leading public health experts from Scottish universities warn that trying to save £5bn through welfare cuts will cause “more premature deaths”, pointing to evidence that cutting social security since 2010 has harmed people’s health.
And meanwhile the UK’s billionaires, who number more than 50, sit on the sidelines and watch as their collective wealth ticks up by an estimated £30m every day. In the time it takes to read this article, they will add £65,000 to their yacht funds and space travel kitties.
The injustice of this persistent inequality is so glaring, you have to wear protective glasses to look at it.
So it’s no accident that the idea of going after some of that “superfluous inordinate wealth” is suddenly bursting to the fore. Every idea has its moment: this is the moment for serious consideration of a wealth tax.
To underline the point, Oxfam, Greenpeace, War and Want and others were joined by Labour and Green Party figures at a protest outside the Treasury yesterday pressing for wealth taxes on the super-rich. Oxfam backed up the protest with research showing that three quarters of the UK population would prefer such taxes over spending cuts. They don’t expect Rachel Reeves to accept the idea today or even next year, but sense that the argument is becoming overwhelming.
Paul Johnston, the director of the Institute for Fiscal Studies, makes the point that while you could raise a “noticeable” amount of money with a wealth tax, no country has ever managed to do so successfully.
They are complex to calculate and administer. Wealthy people’s assets tend to be moveable and they themselves are mobile. They can just leave if they don’t like the tax arrangements, so the argument goes.
But in these convention-busting times it cannot surely be beyond our wit to create a system that works.
A few years ago, economists and tax experts at the London School of Economics produced a paper arguing that a permanent wealth tax was indeed unworkable, because wealthy people would move to avoid it, but that a one-off wealth tax would be feasible.
They came up with five key criteria against which to test the idea: that it should raise substantial revenue, do so efficiently, be fair, be difficult to avoid and achieve these objectives better than the alternatives. They judged a one-off wealth tax would meet these tests and, depending on the level it was set at, would raise a significant sum. A tax set at one per cent of an individual’s wealth over £10m, for instance, could raise £53bn, after taking non-compliance and admin costs into account. A similar tax on individual wealth over £2m would raise around £81bn; over £1m, around £150bn.
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If it were well-designed it would be hard to avoid. If the tax were based on the valuation of assets on the day the tax was announced or even a short time before that, there would be no incentive to move wealth.
So why not have a one-off wealth tax? We could also reform inheritance tax and capital gains tax to make those fairer. What’s becoming clear is that public tolerance for galactic inequality has its limits.
“You can work within the framework of democracy to bring about a better distribution of wealth. You can use your powerful economic resources to wipe poverty from the face of the earth,” said Dr King.
If we don’t, and the wealthiest continue to get richer while the less well-off are squeezed, then we shouldn’t be surprised if people turn away from mainstream politics.
Rebecca McQuillan is a journalist specialising in politics and Scottish affairs. She can be found on X at @BecMcQ and on Bluesky at @becmcq.bsky.social
