Opposition backbenchers back a wealth tax

Richard Burgon – time for a one-off wealth tax

The debate was obtained by Labour MP Richard Burgon, who opened it by saying he wants a redistribution of wealth. He said ‘trickle-down economics has been a lie’, a consequence of 40 years of deregulation, privatisation, outsourcing, driving down working conditions, the weakening of trade unions and lower taxes on the rich.

The MP continued: “Research by the LSE and King’s College London looking at tax cuts over the past 50 years shows that lower taxes on the rich has led to higher income inequality because the top one per cent has captured almost all of the gains, while there has been almost no effect on boosting economic growth. Poverty and inequality are structural and institutionalised.”

Burgon said that while those earning wages are taxed on every penny of their income above permitted allowances, the same does not apply to the accumulation of wealth. For example, capital gains tax does not apply to all wealth but only to increases in the value of particular items of wealth. Structurally, we tax income much more rigorously than we do wealth. “Of course, that favours the wealthy, as it is designed to do,” he said.

There is ‘huge scope’ for increasing tax revenues by ending the significant tax discounts afforded to income from wealth over income from work, said Burgon. Simply ending the lower rates paid on capital gains and share dividends, and removing the related exemptions on those taxes, would raise around £22 billion per year. The ‘regressive’ council tax system could be reformed and replaced with a proportional property tax.

“Beyond making taxes that apply to certain aspects of wealth fairer, it is time for a new one-off tax on the very wealthy,” said Burgon. He pointed out that that had been recommended in 2020 by the UK Wealth Tax Commission, which was ‘packed with leading tax experts’. He described the report as ‘essential reading for every Member of this House’.

“It concludes that a one-off wealth tax would be fair, as those with the most wealth have the broadest shoulders to afford an additional contribution to society in times of crisis,” the Labour MP said. “It would also be efficient. A one-off wealth tax would not discourage economic activity, and the administrative cost would be a small proportion of the revenue raised. It would also be very difficult to avoid by emigrating or moving money offshore. It could raise vast sums to tackle the ills of economic hardship and inequality.”

In terms of the level the levy should be set at, Burgon argued for a one-off 10 per cent tax on wealth above £10 million. He said that, according to the Wealth Tax Commission, that could raise £86 billion. (NB. The Commission’s calculations were that a 5 per cent tax could raise £43 billion, and Burgon seems to have doubled this to get his estimate.)

Such a tax would hit far less than one per cent of the population, Burgon concluded. “It could create a huge social emergency fund to help get people through this crisis and help rebuild the communities hit by a decade of austerity and the slowest pay growth in 200 years.”

Other Labour contributions

John McDonnell, a former Shadow Chancellor, said we have to find a mechanism to address the ‘grotesque’ levels of inequality that the UK is now facing.  He said the link between people having a job and lifting themselves out of poverty has been broken, particularly because of low wages. A one-off wealth tax is one component of the emergency programme that we desperately need.

McDonnell said the best mechanics for taxation have been Tory Chancellors. The decision to level up capital gains tax with income tax under Nigel Lawson had been the right thing to do then, and would be the right thing to do now, giving us anything between £17 billion and £24 billion, which would be more than the national insurance increase, he said.

Rab Butler introduced an excessive profits tax in this country during the Korea war, McDonnell noted. “It was not just a windfall tax on one sector; it was across the economy for anyone who was profiteering, and the money was put back into funding our public services and helping people out of poverty. All those measures are available to us.”

Additionally, said McDonnell, we need to look to the City of London. We need either a tax on bankers’ bonuses or a financial transaction tax, so that we have a regular income and the City pays its way, he argued.

Former Shadow Chief Secretary to the Treasury Rebecca Long Bailey (photographed below) began her speech by citing the concerns of the Patriotic Millionaires group, among others, about a growing divide between the rich and the rest.

Long Bailey said the global race for the most competitive national tax rate has seen the top rates of personal income tax and capital income tax rates decline since the 1980s in leading industrial nations, and the income share of the top one per cent has significantly increased. “On top of all that, the tax system in the UK is littered with loopholes that allow tax avoidance, and there is little resource for HMRC to clamp down on tax avoidance or evasion. There are several inherent structural flaws, such as the ‘absurdity’ that income from wealth is taxed at a lower rate than income from salary.”

We must reform our ‘broken’ taxation system, said Long Bailey, and a wealth tax is one option. There are many permutations as to how a wealth tax could be constructed that require deeper discussion, she said. “It could be an annual tax in tandem with wider, much-needed reform of our taxation system to address existing loopholes and structural flaws; alternatively, it could be a one-off tax in response to the covid pandemic and the cost of living crisis.”

Nadia Whittome remarked that Britain has in recent years gained a record number of billionaires. Between them, they own £653 billion, which is about triple the annual operating budget of the NHS. During the pandemic, their wealth increased by more than a fifth. Whittome finds this situation ‘obscene’ in a time of a cost-of-living crisis.

Jon Trickett warned of a “long-term secular decline in the proportion of GDP that goes into wages and salaries.” He said that tax on capital raises a twelfth of the amount raised from income taxes, and this creates an imbalance. Trickett is not convinced about a one-off wealth tax because a very large amount of money, a proportion of individual wealth, would have to be raised on a one-off basis to make a significant contribution. He prefers a more regular tax on capital.

Beth Winter remarked that ‘more often than not’, those with the capacity to pay a greater amount of tax pay proportionately less than those who are less able.

Winding up the debate for Labour, Shadow Chief Secretary to the Treasury Pat McFadden outlined some of the ‘tax loopholes’ he would like closed, including changes to the treatment of private equity bonuses, paid as carried interest, and abolition of non-dom status. He expressed support for international minimum corporation tax and argued for the current system of business rates to be replaced with a new system of business taxation to create a more modern balance between the physical and the digital and between local high streets and out-of-town locations.

McFadden did not directly address the question of a wealth tax, of the kind envisaged by the Wealth Tax Commission, focusing his closing remarks instead on wealth creation. “Wealth creation… is not simply the ownership of assets. If we support that wealth creation and create the wealth the country needs, we should match that to fair taxation that can give us the public services that underpin a good society.”

Conservative backbench contributions

In an intervention House of Commons Treasury Committee Chair Mel Stride said there must be a limit to the amount of wealth that can be accumulated by a small number of individuals. But Stride noted that many countries have actually stepped back from wealth taxes, ‘which they found did not work because they are bureaucratic and administratively difficult, and they ultimately did not raise the money expected’.

Sir Christopher Chope is against a wealth tax, arguing that if people want to pay more towards the costs of the state and are in a position so to do, there is a voluntary system out there. He said: “Let us keep the wealth creators in our country. Let us praise the work they do, the jobs they create and the contribution they make to our overall wealth as a nation. Let us not deter them and drive them away elsewhere.”

Other contributions

SNP Treasury spokesperson Peter Grant opined that the deliberate decision to increase national insurance contributions rather than other forms of income tax was a deliberate attempt to tax the poor rather than the wealthy for failings in the NHS.

In a wide-ranging speech Grant said this Government choose to employ eight times as many people to chase benefit cheats than they employ to chase tax cheats. We have just over 500 people to deal with large-scale tax fraud against HMRC, he said.

Grant sounded sympathetic to a wealth tax without offering the idea unambiguous backing. “A wealth tax [cannot] solve inequality to the extent that we have it in these four nations, but surely it is time to send out a signal that the purpose of taxation is not to give people who have too much money even more,” he said.

“There is not a single thing called a wealth tax that is necessarily good or bad, the SNP spokesperson continued, saying ideas in this area needed to be looked at in detail. “However, given the level of inequalities that we have just now, and given that there are people resident in these four nations who sometimes try to pretend not to be resident and who literally have more money that they could possibly spend during their lifetime, no matter how hard they try, surely it is only reasonable to ask them to give up a tiny fraction of their massive wealth to protect people who have been through the mill over the last two and a half years, many of whom have made massive sacrifices.”

Caroline Lucas, Green Party, said the UK could levy an exit tax on vacating wealthy individuals, as they do in the USA, to discourage wealthy people from leaving because of a wealth tax.

Jim Shannon, DUP, talked about the obscenity of people getting large amounts of money when others are getting much less. “People get six-figure dividends when others live on £10 an hour. That obscene disparity is the issue.”

Claire Hanna, SDLP, said wealth inequality is driven, first, by failures in the tax system to levy tax, and secondly, by evasion and avoidance, which is not just about short-changing the public purse but also has a distorting effect on decent, compliant and ‘locally anchored businesses’. Taxing income alone will not raise the resource needed to genuinely transformative in those issues of poverty and climate change.

A supporter of a wealth tax, Hanna said the wealthy and their wealth will not just leave any more than wealth is already leaving the public purse due to our complex and loosely regulated tax system. She said: “A large amount of the wealth in this country is tied up in property… it cannot just up sticks and leave. Tax avoidance is not inevitable; it is a policy choice around where to levy tax and underfund enforcement.”

Ministerial response – wealthy already paying a lot of tax

The Financial Secretary to the Treasury Lucy Frazer responded to the debate for the Government. She began by talking about the degree to which wealthier individuals already pay a significant—and proportionately significantly greater—amount in tax.

Reflecting on the Wealth Tax Commission’s research, she said that it had found that, taking the narrowest definition of a tax on wealth—that is, inheritance, estate and gift taxes—UK taxes on wealth were about average compared with other G7 countries. At the same time, government policy is, and will continue to be, highly redistributive in the round. In 2024-25, on average, households in the lowest income 10 per cent will receive more than £4 in public spending for every £1 they pay in tax.

The minister quoted Denis Healey, a Labour Chancellor of the Exchequer, who reflected after office that ‘We had committed ourselves to a wealth tax; but in five years I found it impossible to draft one which would yield enough revenue to be worth the administrative cost and political hassle’.

The minister said the Government have made a number of steps to reform both the dividend tax and CGT regimes. “For example, in 2016, the Government reformed the old, complex system of dividend taxation, simplifying it at the same time as increasing effective rates. In 2018, we reduced the tax-free dividend allowance from £5,000 to £2,000 per annum. In 2020, the Chancellor cut the lifetime limit of CGT entrepreneurs’ relief from £10 million to £1 million.”

The full session is here.

By Hamant Verma, CIOT Senior External Relations Officer

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