Wealth needs sharing more fairly: over to you, Labour

Cash: that’s what the government needs, but how to get it? This question has pushed the idea of a wealth tax to the top of the agenda, against a backdrop of wealth disparities that would have seemed obscene even in Victorian Britain.

A wealth tax is treated by some as a left-wing virility test, and a willingness to impose one proof that a leader is a worthy custodian of Harold Wilson’s sacred “moral crusade”. The more punitive the better, some would have it, in protest at the guarding of riches by one class while another scrimps and shivers.

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But others take a more moderate, goal-focused approach. Greenpeace has a proposal for Labour to introduce a temporary 2.5 per cent tax for five years on individual wealth over £10 million. According to King’s College London economists, it would raise at least £130 billion which would fund the insulation of all poorly insulated homes, the training of three million people for jobs in the green economy and lower public transport costs. And taking that small percentage of wealth would apparently barely impede the ability of the taxpayers concerned to buy themselves Bulgari watches or install home cinemas. One supportive multi-millionaire says you could pay the tax and “still enjoy a very good lifestyle indeed”.

So not a rapacious ambush, then, with the Government playing Robin Hood, but an attempt to strike a fair balance. Imagine a toll booth at the edge of Nottingham, staffed by Friar Tuck and guarded by Little John, demanding not the chest of jewels strapped to the carriage roof, but the ruby pinkie ring on the wealthy merchant’s finger, with all proceeds going directly to fund infrastructure projects and apprenticeships in and around the village of Loxley. There it is, all tied up in a bow: a financial and moral no-brainer.

But “deceptively simple” was a phrase that could have been invented for wealth taxes. Most experts think they are attractive in principle but sadly unworkable in practice. Problem one: how do you assess the level of someone’s wealth when it could include everything from homes to businesses, jewellery to cars, gold bullion to artwork? With difficulty. Problem two: what would be the administrative costs, especially with assessments needing repeated every year? High. Problem three: the wealthy can move and so can their moolah, so how do you stop them leaving, or shifting their assets around to avoid tax? You can’t.

Some argue for a one-off wealth tax to avoid some of these problems. It would require just one single assessment and wouldn’t give people time to move their assets to avoid the tax (though repayments could made over a few years). It could be used as a crisis measure in the face of the climate emergency and to boost public services, just as the Conservative government did with the windfall tax on energy companies’ profits after the pandemic (which Labour is extending).

You can't stop the wealthy moving their assets around to avoid tax (Image: Dan Kitwood)

An alternative would be to reform existing wealth-based taxes, like inheritance or capital gains. The lion’s share of the latter is paid by the seriously wealthy, it’s taxed at a lower rate than income and urgently needs to be reformed to end people using it for tax avoidance.

Then there’s reforming council tax so that people are paying it at a level that reflects their actual wealth instead of basing it on property valuations that are practically medieval.

So which of these, if any, will Rachel Reeves plump for? Will Labour would use the “hard choices” mantra as a Trojan horse to make wealth distribution fairer? Well so far, the Chancellor has ruled out a wealth tax. There’s no sign of moves to revalue property for council tax, either in England and Wales under Labour, or here in Scotland. The Chancellor could opt to close loopholes in inheritance tax though that won’t bring in transformative sums. The rate of CGT could increase, though the Institute for Fiscal Studies warns it will only be truly fair and reliable as a revenue-raiser if its rates are better aligned with other forms of tax and distorting anomalies are ironed out. Keir Starmer has scotched rumours CGT could rise as high as 39 per cent. It’s hard to see the Budget’s wow moment in any of this.

Taxing wealth is hard. Opponents are already sharpening up their counter arguments, preparing to protest that any increase in wealth-based taxes will punish those who are not that rich, and deter investment and entrepreneurialism (“you said you wanted to grow the economy!”), but something has to give.

The UK is a wealthy country overall but the bottom half of the population own just five per cent of the wealth, while the top tenth own 57 per cent. The level of child poverty is a scandal. We are a nation of shacks and palaces, hunger and extravagance. Any first-year political science student knows that if inequality increases, so does polarisation, social discontent, the potential for unrest and the pull of extremism. We’ve already seen Nigel Farage offering populist soundbites in place of serious solutions and exploiting the summer of unrest. Giving people confidence that life will get fairer could bring much-needed stability.

Can Keir Starmer and Rachel Reeves do it? For all the condemnatory comment about them, we don’t yet know what they are going to do. Putting to one side the hysteria from those who apparently expected them to abandon their promise of fiscal probity on day one and spend money like Rebecca Long-Bailey on Red Bull, this Budget will tell us who they really are. It will signal how far they are prepared to go to make Britain fairer. What’s clear is that it’s impossible without taking the chisel to that mountain of undertaxed wealth.

Rebecca McQuillan is a freelance journalist specialising in politics and Scottish affairs. She can be found on X at @BecMcQ