A lot of voters of moderate left-of-centre persuasion find it profoundly depressing these days to see Keir Starmer rowing back from spending suggestions made in the past.
One casualty has been the ‘green investment plan’, to fund from year one of a Labour government, an environmental revolution costing £28bn a year. The start date for that has been pushed back, ostensibly to comply with self-imposed ‘fiscal rules’, allegedly necessitated by the dire state of the economy. It is likely, however, that one attack in The Daily Mail on the tax-increase impact of the investment plan has sent Starmer and shadow chancellor Rachel Reeves running for cover.
Equally depressing, if not more so, was Starmer’s statement on 16 July in relation to the Conservative two child benefit limit – Labour is “not changing that policy”. As explained in The Guardian, scrapping that cap would cost £1.3bn per annum but would lift 250,000 children out of poverty and a further 850,000 out of deep poverty.
But two reports have emerged in recent years from different organisations that, taken together, provide a credible route to solving Labour’s fiscal responsibility dilemma. The first sets out the stark facts about increasing levels of wealth inequality in the UK. The second makes a concrete proposal as to how Labour could harness this as a resource for the good of the country as a whole.
A proliferation of billionaires in the UK
In December 2022, The Equality Trust published a report on the growing proliferation of billionaires in the UK (up from 147 in 2020 to 177 today) and on the extent to which wealth had ‘trickled upwards’ to accumulate at the top.
The facts are as follows. In 1990, billionaire wealth totalled £53.9bn. By 2022 this had risen to £653.1bn (measured at constant 2021 prices). Billionaire wealth increased by £150bn from 2020 – 22, i.e., during the pandemic. This was largely a side effect of the Bank of England’s quantitative easing policy that was designed to mitigate the worst economic effects of the pandemic but additionally swelled asset values.
The UK’s huge wealth inequality
However, the growth of inequality had been four decades in the making, a major factor being the deregulation of the activities of the City of London in 1986 (the so-called ‘Big Bang’). The Equality Trust report includes an explanation of the financialisation that subsequently took place which helped make the City of London become “the billionaires’ playground”:
“… a vast web of tax evasion and avoidance, a role facilitated by both the UK’s weak transparency laws and its links to former British colonies such as the Cayman Islands and British Virgin Islands, the latter of which play host to over two thirds of the companies linked to the Pandora Papers revelations in 2020.”
These financial machinations generate income in the City, where even in today’s cost-of-living crisis City bars report a run on champagne as agents celebrate their big bonuses.
Another effect of financialisation, as The Equality Trust report further points out, has been to alter the balance between wages and profits/dividends. The extraction of increasing amounts of capital from companies in the form of dividends and share buybacks has meant less money available for wages and the kinds of investments that could lead to savings for consumers. Wages have been squeezed and many workers have experienced a fall in real incomes in recent years. Meanwhile, the average pay of CEOs in the FTSE 100 companies is £3.41m per annum. The share of wealth of the top 10% of wealth holders is 57.1%. The bottom half of the wealth league together hold a meagre 4.6%.
The obvious resource of great wealth, dubiously accumulated at the expense of ordinary people, is surely one that the Labour Party would wish to exploit.
A one-off wealth tax on those with the broadest shoulders
A second report, published in 2020, outlined how this might be done.
Aran Advani and Andy Summers are academic economists (Warwick University & LSE) whilst Emma Chamberlain is a barrister specialising in tax law. They engaged internationally with 50 other experts to come up a proposal for a one-off tax on wealth.
Assuming a modest tax rate of 1% on all net wealth, the amount raised naturally would depend on where any government sets the threshold for the tax. With a low threshold of one million pounds, the tax would raise £260bn over a five-year payment period. With a much higher threshold of £4mn, the tax raised reduces to £80bn.
Two points here. First, the five-year payment period for spreading the payment means that those who are asset-rich but income-poor do not have to engage in a fire-sale of assets to pay the tax.
Secondly, if the government were looking to raise, say, £30bn per annum from the tax, (£150bn in total) given the figures above, there is clearly a threshold of household worth around £2mn that would yield the £30bn per year in question.
In short, this one-off wealth tax is capable of providing the funding both for Labour’s green investment plan from year one, together with the removal of the two-child cap in child benefit. All this, and Rachel Reeves would have stayed within her self-imposed ‘fiscal rules’. (And if it were the case that The Daily Mail ran a shock-horror story, that might be taken as an endorsement that the tax was a good thing).
Does Labour have the courage?
Readers of this article might suspect that this is all ‘too good to be true’ and that ‘there must be snags’. However, the report runs to 160 pages together with a further 14 looking to address frequently asked questions. The authors (with the help of 50 others consulted) have done their homework. They write:
“Wealth provides opportunity, security and spending power. Those with the most wealth have the ‘broadest shoulders’ to afford an additional contribution to society in times of crisis.”
Their proposal is one that should surely fit comfortably into any Labour manifesto.
What is required now is political courage. The question is, does the Labour Party have that courage?