British society has never been more unequal: income inequality has skyrocketed to one of the highest levels amongst OECD countries, whilst billionaires hold on to 63% of the country’s wealth and are accumulating even more wealth in their assets by the day.
Yet, it appears that after a variety of financial tweaks, including frozen thresholds and minor taxes being introduced in the Autumn Budget, Chancellor Rachel Reeves hinted that “tough decisions” will need to be made for the benefit of the national economy. This is no surprise, considering that the government is faced with a £40bn hole in the public finances, a stagnant economy, and struggling public services.
However, rising taxes will only exert further financial pressure on the poorest households in Britain, as they continue to battle a cost-of-living crisis exacerbated by rising inflation, despite a significant decrease since October 2022, and soaring energy bills, which are expected to increase by 20% over the next four years.
Instead of raising the tax burden, especially on the poorest households, which are already struggling to make ends meet, former financial trader and economist Gary Stevenson suggests that the government should enforce a 2% tax on net wealth above £10 million through his “Tax Wealth not Work” campaign.
Gary Stevenson’s wealth tax proposal, which would be levied on the net wealth of a person’s assets, appears to be widely popular amongst the British public, 49% of whom are strongly supportive of a wealth tax of 2% on net wealth worth more than £10 million.
There are a variety of reasons why a wealth tax proposal has gained such traction in the media, the primary being the growing public frustration not solely with higher taxes, but with raising interest rates on their assets.
Alexander Nunn, Senior Lecturer in Global Political Economy at the University of Manchester, explains that a “significant and underreported aspect of inequality is the growth in the value of assets and also of household debt, including student loan debt.” Therefore, a wealth tax would be fairer because, whilst the assets of the rich grow exponentially, so does debt repayment, which accounts for a “greater share of the costs of poor households.”
Aside from lifting the financial burden off of the most precarious households in Britain, a wealth tax could raise up to £24bn a year, potentially helping reduce the national debt or improving public services, the latter of which many see as severely underfunded but vital to ensure access to healthcare, education and social care for all.
Nevertheless, some tax experts warn of the potential unwanted outcomes and challenges of levying an annual wealth tax in the UK, such as the possibility that the rich will evade it by moving their assets abroad. Implementing a wealth tax would also require the government to set up a new administrative apparatus to value assets, which is often challenging due to the nature of these assets.
Furthermore, a report by the OECD shows that wealth taxes in most countries have failed to meet their redistributive goals due to narrow tax bases and tax evasion. Reforming the current tax system to ensure high returns is a more favourable option to redistribute wealth than a net wealth tax, according to the Institute of National Fiscal Studies.
Although there are significant hurdles to implementing a workable, effective wealth tax to redistribute wealth, Dirk Foremny, Professor of Economics at the University of Barcelona, believes that a wealth tax has an important social value beyond redistribution: taxing the wealthiest individuals in society is pivotal to protecting our democratic system by limiting the concentration of wealth in the hands of the very few. The illegitimate political power of the tech billionaires in the US is a prime example of the consequences of wealth accumulation for the very few.
A net wealth tax, as it currently stands, may present too many challenges and shortcomings to make it worth adopting. But as social cohesion is threatened by spiralling inequality, and our democracy is at risk of backsliding, many would argue that our government should take action to tackle increasing wealth inequality and protect our democratic values by creating a fairer, more redistributive tax system.
