Nadia on... the benefits of wealth tax

You don’t need me to tell you just how bad things have gotten after fourteen years of Conservative governments. Anger at the NHS and public services being forced onto their knees, the cost of living crisis and their mishandling of the pandemic are some of the many reasons why the Tories are no longer in power.

Here in Nottingham, we’ve been hit particularly hard. Our city is the 11th most deprived district out of 317 in England and we have been receiving £100 million less each year from central government.

There’s no question that the new Labour government has inherited a mess from the Tories, and this mismanagement extends to public finances too with the government now facing huge spending pressures. Under the previous governments (which got us into this mess in the first place), the automatic reaction to overspending or unforeseen costs would be to make further cuts.

But further cuts right now will not help to fix our broken society. What we need is more public spending, not less. Austerity is not an inevitability - there are other choices the new government could make to help bolster the Treasury’s coffers.

Far from being strapped for cash, there is a lot of wealth in our country. The problem is that it’s in the hands of the few: super-rich individuals hoarding extreme amounts of money and assets. For example, there are 165 billionaires in the UK. To give you an idea of just how wealthy these people are, if you spent £1,000 every day it would take 2740 years for you to spend a billion pounds.

For years, we were told that rich people getting richer would benefit us all - that they would be “wealth-creators” and that a rising tide would lift all boats. But trickle-down economics, as this theory is called, has proven to be a lie. An academic study that analysed the economic effects of major tax cuts for the rich across five decades in eighteen wealthy nations found that the rich got richer but there was no meaningful effect on unemployment or economic growth.

In the UK, previous governments’ ideological obsession with low taxation for the richest few and big businesses has fuelled inequality. Wealth and income disparity fell during the 20th century, but began rising again in the 1980s - when Thatcher was in power. Now, the fifty richest families in the UK hold more wealth than half of the UK’s population combined. If the wealth of the super-rich continues to grow at this rate, then by 2035, the wealth of the richest 200 families will be larger than the UK’s GDP.

Part of the reason for this is that our tax system is highly regressive. The rich get the easiest of rides, with taxes on income from work much greater than taxes on wealth, despite wages still being lower in real terms than in 2008. Meanwhile, other taxes like council tax, VAT, and duties on alcohol and tobacco hit the incomes of the poorest households hardest.

What we need is a just tax system: one that closes loopholes, taxes wealth at the same rate as income and ensures wealthy individuals and corporations pay their fair share. And this is popular with the public. In 2020, the Wealth Tax Commission’s survey found that people had a strong preference for any tax increases to fall on wealth rather than on income.

A number of studies have suggested how these taxes could be implemented to boost public finances. For example, the Resolution Foundation has shown how, through modest wealth and capital gains tax reforms, the government could raise an extra £10 billion. Meanwhile, a one-off 1% tax on assets above £2 million, to be paid over five years, could raise £80 billion.

But won’t the super-rich just leave? Not necessarily. In interviews with the richest 1% and 0.1% in the UK, one academic at the London School of Economics found that around a third of participants suggested that inequality should be lower, and many supported higher taxation on themselves to provide others with opportunities.

Meanwhile, evidence from the US state of New Jersey, which introduced a new tax bracket for those earning more than $500,000 a year, found that those subject to the new tax moved in and out of the state at similar rates to those who were just under the tax bracket. Even if a small number of multi-millionaires were to relocate, there’s a strong argument that our public finances would still be better off, and we could implement an “exit tax”, like the US, on those wanting to leave.

So we should not cave in to this fear-mongering. Taxation is one of the few means we currently have of redistributing wealth, away from those exploiting people or hoarding riches passed down for generations, and using it to better everyone’s lives.

With the foundations of our society broken, it’s time to use wealth taxes to help repair our public services, redesign our economy and tackle inequality.

nadiawhittome.org