Dan Jarvis and Nick Donovan: Enough of balancing the budget on the poor – it is time to consider a one-off wealth tax

By Dan Jarvis, Labour MP for Barnsley Central, and Nick Donovan, author of A Unique Contribution, which proposes a one-off wealth tax, published today by the Fabian Society and Friedrich-Ebert-Stiftung.

Labour used the sense of national purpose following World War Two to build our National Health Service and welfare state. These institutions joined universal education, juries and national service in bringing together individuals from all backgrounds.

Labour has laid the building blocks for universal childcare, and we have argued for a renewal of national citizen service – a voluntary service for all our young people.

Today, powerful forces – which the Tories either condone or accelerate – are tearing at the ties that bind us together.

Inequality of wealth soared during the Thatcher years. Extreme inequality tempts some in our society to opt out of Britain’s shared institutions: state schools, NHS hospitals, even taxes. Private schooling turns inequality of outcome into inequality of opportunity – as the wealthy buy better outcomes for their children. Private hospitals insulated the wealthy from the shared experience of the decline of the NHS during the 1980s. But nothing is more corrosive to the body politic than tax avoidance.

Most ordinary people – nurses, shop workers, soldiers – pay their taxes through PAYE. Small business owners are aware of every penny they send off to the taxman. It sticks in their craw that others, believing that taxes are “just for the little people”, reduce their taxes through fictitious film schemes or Swiss bank accounts. The Panama Papers revelations feed the suspicion that there’s one rule for them, and another for the rest of us.

This sense of unfairness is exacerbated by austerity. In the aftermath of the global financial crash George Osborne placed the burden for reducing the deficit on the narrowest shoulders. He’s cut tax credits for those in work, cut support for the disabled, and starved the public sector.

What’s worse is that none of those paying for the repercussions of the financial crisis had anything to do with causing it. Last year 2,274 pupils in Barnsley Central were eligible for free school meals, and more than half of children left school without five good GCSEs. Not one of those kids owned a credit default swap or a collateralised debt obligation. Yet, according to the Institute for Fiscal Studies, real school spending per pupil in England will fall by 8 per cent this Parliament, while spending on Further Education fell by 14 per cent over the last five years. This is poor ethics and bad economics.

The British public expect Labour to be a safe pair of hands with their money. Specifically, they expect the deficit to be reduced – but for us to do so in a fair way.

Imagine an alternative political history. In the aftermath of the 2010 election following the global financial crash a radical Chancellor enters office for the first time. On being briefed about the scale of the deficit they dust off an old Fabian pamphlet from the years following the First World War. The Labour party then backed a one-off capital levy to reduce the national debt. Something similar, a one-off tax on capital income termed a “special contribution”, was introduced by Labour following World War Two. They instruct advisers to produce a plan for a one-off response to the once in a lifetime shock to the public finances.

They return with what they call a “unique contribution”: a one-off levy on those with net wealth of over £10 million, with a higher tax rate above £20 million. “High risk” taxpayers – non doms, those who have moved assets to tax havens or used domestic tax avoidance schemes – must undergo a stringent valuation exercise. “Low risk” taxpayers have a non-intrusive wealth valuation based upon past declared unearned income, avoiding difficult assessments of family heirlooms. The tax is levied on those who are long term residents of the UK, covering many non-doms. Because it is a one-off the levy it avoids any of the distortionary economic effects and political obstacles sometimes ascribed to annual wealth taxes.

The Chancellor introduces the levy in an emergency Budget. In a country where the top 1,000 have combined wealth of £576 billion, the revenue makes a sizeable dent in the deficit. The threshold is so high that only those who are truly wealthy pay the levy, it is one-off so those who pay it aren’t driven away, it exempts many difficult to value objects such as family heirlooms.

Back to reality. George Osborne has delivered eight budgets. He has made political choices to cut taxes for the rich, while slashing the public services the majority depend on. “We’re all in it together” now rings hollow, and year after year of grinding spending cuts have caused the fabric of our society to fray.

The economic and fiscal circumstances when Labour next comes to power will be different to those of 2010 or today. Being in opposition and out of power frustrates all who are ambitious to change Britain. Yet it gives an opportunity to consider policies which meet the big challenges of our time. That is why a one-off unique contribution should be considered as part of Labour’s policy review.

When we enter government there will be urgent action required to rebuild our public services, invest in our economy and narrow inequalities. Our country is fracturing constitutionally and socially. Labour’s task will be to bring our country together again.