Wealth tax – lost in smoke and mirrors

12th December 2020

Wealth tax – calculating the consequences

The Wealth Tax Commission was established in April 2020 to explore whether a wealth tax for the UK would be desirable and deliverable, as a means of contributing towards paying for the economic impact of the COVID-19 pandemic.  The Commission’s report, published this week, follows intensive research by a team of over fifty international experts on tax policy and practice. The three Commissioners are academics from the London School of Economics and Political Science (LSE) and the University of Warwick, and a leading barrister with long experience of advising High Net Worth Individuals.

In summary the Commission concluded that a one off wealth tax could be levied upon any UK resident with net worth over a certain level; include all sources of wealth such as property and pensions, not just income; and be payable over five years.  The report does not recommend at what level the threshold for wealth should be set but in one model, setting the bar at £1 million, taxed at 1% per year for five years, the Commission estimates that £260 billion could be raised over the five year period.

Dr Arun Advani, Assistant Professor at the University of Warwick and Visiting Fellow at LSE’s International Inequalities Institute, said: “We’re often told that the only way to raise serious tax revenue is from income tax, national insurance contributions, or VAT. This simply isn’t the case, so it is a political choice where to get the money from, if and when there are tax rises.” 

Dr Andy Summers, Associate Professor at LSE’s Department of Law and Associate Member of the International Inequalities Institute, said: “Our report provides the first serious look at proposals for a UK wealth tax in nearly half a century. A one-off wealth tax would work, raise significant revenue, and be fairer and more efficient than the alternatives.”

With the economic costs of the pandemic currently running at an estimated £280 billion, the implementation of such an approach would appear to be glaringly obvious, even to a capitalist economist.  By way of contrast, raising £250 billion from income tax over 5 years would require a 9% increase to the basic rate, or all income tax rates to rise by over 6%.  The report however was not commissioned by the Government and there is no indication that it is likely to influence government policy.  On the contrary UK Chancellor, Rishi Sunak, is on record as stating in July 2020, “No, I do not believe that now is the time, or ever would be the time, for a wealth tax”.

Instead, Sunak has adopted an approach which has a public sector pay freeze as its centre piece, making teachers, firefighters, local government workers and the care sector pay for the pandemic.  Sunak has so far refused to consolidate the extra £20 per week paid to those on Universal Credit beyond March 2021, to help address the impact of sudden and severe unemployment.  Sunak has not seen his way to extend the furlough scheme, to help those businesses struggling to survive, beyond the end of the financial year, in spite of the optimism generated around the COVID-19 vaccine coming on stream.

It is interesting to note that, while the one off wealth tax idea in itself presents a challenge to Tory thinking, in the view of the authors of the report, an annual tax would be much more difficult to deliver effectively and would only be justified if the aim was specifically to reduce inequality by redistributing wealth.  Shudder the thought that a UK government could have such an objective!

While the report presents the political establishment with an option, in terms of paying the financial costs of the pandemic, it is still an attempt by one element of the political establishment to find a fix.  It is not in itself suggesting a fix for the endemic inequalities of capitalism or presenting any fundamental challenge to the system.  There is no question raised as to why any society should have such a thing as ‘high net worth’ individuals in the first place, when others are unemployed or homeless.  

These questions, the authors of the report would no doubt argue, were not within its remit.  However, they are legitimate questions nonetheless, especially in the context of over 60,000 COVID-19 deaths according to official figures, the massive impact upon working class communities of job losses, and the insecurity which continues to haunt many in relation to future income and employment.   

The Wealth Tax Commission report makes clear that the wealth is there and could be harvested for public good, even on a one off basis.  It could be a source of income for the Exchequer on an annual basis if the political will prevailed.  More importantly, the fact of such extreme wealth in society, only accumulated through financial chicanery or exploitation, should come under the spotlight and be challenged.  

There are questions which the political establishment in the UK do not want to be asked.  That is why even the report of the Wealth Tax Commission is generally buried in the financial pages, rather than being reported as banner tabloid headlines.  Even such a relatively tame challenge cannot be given too much airtime, in case the obvious conclusions are drawn. 

Capitalism is a moribund system surviving only through a complex deployment of smoke and mirrors, which keeps the real character of the system disguised.   The current pandemic however continues to expose the flaws and contradictions in the system.  People are increasingly looking for an alternative, an alternative which only socialism can provide.

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