Taxing the better-off is not going to be easy. For one thing, no one can agree on how to go about it. Thinktanks have put forward various proposals, usually targeting individual wealth.
Voices across the political spectrum agree with the need for such a move. Free-market economists are just as worried about the excessive accumulation of personal capital as those on the left.
Wealth erodes the desire to work, and encourages the kind of nepotism that historians know sows the seeds of societal destruction. And this process can happen within a few generations when the tax on incomes is much higher than that on wealth. Last week a report from UBS bank found the latest entrants to the billionaire category gained more of their fortune from inheritance than from hard work.
Britain is not alone in becoming host to a moneyed class who live off asset gains and rents. It’s just that, as the earliest industrial nation and the most successful imperialist, it leads the pack.
The disagreement becomes – at least so far – insurmountable when it comes to how to tax individual wealth. In 2020, the Social Market Foundation proposed a levy on property that would bring an individual’s main home into the tax net for the first time. A 10% surcharge on the profit from selling a home would be a relatively light tax, given the colossal gains from selling real estate over the past 40 years, and would raise upwards of £400bn over 20 years, from what the SMF said was an estimated £5tn of property assets (a figure that in 2022 actually hit more than £7tn).
James Kirkup, who was head of the SMF when the proposal was made, had been political editor of the Daily Telegraph. He had strong connections in the Tory party and judged that this might be acceptable, given the tax was slight and all in the future. But he was wrong and the idea died.
Likewise, wealth tax reforms proposed by the IPPR, the Institute for Fiscal Studies, the Resolution Foundation, the TUC, the New Economics Foundation and the many others that seek to conjure more money from share-owning and property never gained traction.
In large part this is due to the competition for public attention that drives thinktank funding. Why would they coalesce around a rival’s idea? But those who support the idea of a wealth tax should agree to back a single policy programme. Without agreement based on some significant compromise, the levy will never get off the ground.
The most efficient and fairest tax is one applied to land ownership. Most economists know this, but believe the moment has passed now that property has become such a high-value asset.
A land tax would affect an ancient aristocracy that owns the most treasured and valuable of British assets, but there is also a trend for decision makers and people of influence – be they MPs, chief executives or newspaper owners – to possess expensive plots of land. These holdings would face much higher annual tax rates than under Kirkup’s tax scheme.
Homes in prime locations bought long before the property price boom of the past 25 years would attract the highest rates of land value tax.
And while there would be the promise of income tax cuts to compensate for more wealth taxes, the professional classes and property-owning retirees know they would be unlikely to benefit overall.
Taxes, of whatever kind, also have their limits in an age when the costs of government are going up every year. The nation’s crumbling infrastructure needs more cash, welfare programmes are underfunded and an ageing population is only going to become more costly. And putting up taxes every year is not good politics, even when the taxes are well designed.
Last week, the Productivity Institute produced a blueprint with the aim of showing how we can all work more effectively, generating more income and more tax from the same resources. Another answer can be found in the programmes articulated by those who argue we simply consume less as part of a “post-growth” or “degrowth” strategy.
These are radical alternatives to the solution most commonly pursued by governments – applying ever-higher surcharges on the incomes from work and a policy of borrowing that has become hugely expensive in the post-Covid era.
Tory leaders say more of the same is the answer. Labour follows suit, disagreeing only about how much of the money raised should be ploughed into the same tired system. It’s easy to see why. Public inertia is strong and thinktank solutions lack momentum.
Some collaboration among those on the left of the debate might help.