Taxing the rich will address inequality and secure the welfare state’s future. It’s a Tory peer’s call, and he’s right
Tax may as well be a four letter word. Politicians have found little public support for raising taxes over the years. Think of the poll tax riots, the furore over Ed Miliband’s mansion tax or George Osborne’s “omnishambles” budget and the pickle he was in over the humble pasty.
Usually the most resistance is reserved for wealth taxes, not least for their doom-laden names given by the media: no voter wants to pay for death tax or dementia tax. Denis Healey, the Labour chancellor misquoted for wanting to “squeeze the rich until the pips squeak”, came closest, with a 1974 election wealth tax pledge but was forced to backtrack. The pips would have squeaked a little too loud for comfort.
Fast forward and the time has come to make the case for greater wealth taxes, given our emerging economic realities, demographic shifts and growing levels of inequality. The alternative is a country bereft of welfare support, or wallowing in ever-greater mountains of debt.
The latest politician to push for a change of tone may raise a few eyebrows. It isn’t John McDonnell or Jeremy Corbyn, but David Willetts, the Conservative peer who was a universities minister under David Cameron. Lord Willetts will attempt to make the case for greater wealth taxes in a speech on Monday.
The reasons are clear. The public purse will be out of pocket by roughly £160bn by the mid-2060s as the number of people over 65 grows by almost a third, while the working age population is expected to only increase by about 2%. The government’s own forecaster, the Office for Budget Responsibility, reckons healthcare spending will need to almost double from 6.9% of GDP in the early 2020s to 12.6% by the mid-2060s because of demographic shift alone.
More people will become net beneficiaries of the welfare state than net contributors could support, according to analysis by the Resolution Foundation, which Willetts chairs. That is unsustainable; regardless of how efficiently the state spends our taxes and which party is in power.
The divide between rich and poor is growing and it’s proving increasingly difficult to earn your way to riches. Wealth taxes are being considered as a result, with work also being done by the Institute for Public Policy and Research expected to be published next month.
The level of wealth in Britain – including property, cash savings, shares and pensions – rose by 15% in the two years to June 2016 to a record £12.8tn. But that vast stockpile is unevenly spread: the top 10% of households owned almost half, while the poorest fifth’s overall wealth decline in real terms.
The divisions of wealth are far starker than differences in pay. According to the Office for National Statistics, the top 10% of households by income earn 6.8 times more than those on the lowest rung, but the wealthiest 10th of households have 290 times more in total assets than those at the bottom of the pile. Barring great luck or skilled entrepreneurship – in itself something easier to embark upon for the children of the wealthy – it’s nigh-on impossible to earn your way to riches.
Nowhere is the myth of the plucky grafter better torn apart than in a new book by the writer James Bloodworth, who spent six months living and working in low-wage Britain for companies like Amazon and Uber.
Amazon founder Jeff Bezos may be the richest man in the world, but his workers in Warrington, Rugeley, Swansea and elsewhere may never join the uber-elite for all the hours they toil. Bloodworth was paid the equivalent of £12,740 a year to work gruelling shifts packing boxes full of books and DVDs. The Joseph Rowntree Foundation estimates pay of £17,100 is needed just to achieve a minimum standard of living.
The trouble would be implementing the changes required. Polling shows wealth taxes are viewed as the most unfair way for the government to raise money, even though the accumulation of wealth is often passive – particularly for property owners.
Part of the problem is trust in government to spend taxes well. Labour has a particular issue given Tory attacks since the financial crisis – labelling the mess as “Labour’s recession” caused by profligate overspending. It was time for collective belt-tightening in penance for the excesses of the past.
“We will not burden our children and grandchildren,” ran the Tory mantra. Now a former Conservative cabinet member will say the same to justify raising taxes, rather than cutting spending.
Willets will argue the time has come for baby boomers to reach into their pockets to benefit younger generations. The age of tax cuts is over, he will say. Instead, politics will be about who pays more and how much.
“We need a well-funded welfare state capable of helping us in our old age and we should help pay for it, rather than expecting our hard-pressed children and grandchildren to bear the whole burden,” he is expected to say.
Given his time in government included hiking student tuition fees up to £9,250 a year, he should expect accusations of hypocrisy. But Labour would do better to use his message as a catalyst for consensus building.
Britain already has some versions of wealth taxes that could be reformed. Council tax, still reliant on property values as they were in 1991, would be the obvious place to start. Inheritance tax is another. The bulk of money left each year in inheritances has more than doubled in past 20 years, and will more than double again over the next two decades.
There is a danger that greater wealth taxes could impoverish those who are asset rich but cash poor. Not all those living on millionaire’s row are actually millionaires – unless they sell and move somewhere cheaper. So the design of any increase in wealth taxation would be key.
The French economist Thomas Pikketty has argued that without change, inheritance will eventually matter a lot more when determining a person’s life chances, as it did in ancient societies. Past wealth, he says, will tend to dominate new wealth – and successors will tend to dominate labour earners.
The time now is not for turning the clock back. Instead, the time for a wealth tax has come.