Wealth taxes are the alternative to Conservative austerity 2.0

Some say you should never let a good crisis go to waste. For the Tory Party, that means using every crisis we face to pursue ruthless class-war policies. The global banking crisis was used as an excuse for austerity measures that deliberately ripped apart our public services. The Covid crisis was a chance to hand over billions in dodgy contracts including to many with close links to the Tories.

In the same vein, the Tory response to this latest economic crisis – one that their policies have made much worse – is a new round of tax hikes on ordinary people and public service cuts. To justify this, we are told that the most urgent issue in our politics is not those struggling to feed their families, turn on their heating or pay their rent but tackling the fiscal ‘black hole’. Any fears that austerity will further slow down growth, reduce people’s incomes, worsen the public finances and destroy key services are dismissed. Lessons from the austerity from the last decade are ignored.

In recent days, an excellent job has been done by the IPPR and the Progressive Economy Forum in bringing into question the narrative around this ‘black hole’ in the public finances. More and more economists are now refuting it, too, and highlighting how a new round of austerity would not be a necessity but a political choice. As progressives we need to build on their work and defeat this damaging narrative, which is designed to silence any opposition to austerity 2.0.

We must also shift the debate when it comes to taxation. There’s a lot of empty Tory talk about those with the broadest shoulders paying the most. But too often that means focusing narrowly on just income and ignoring wealth. That approach lets the richest, who have done very well over the last decade, off the hook. As a new Institute for Fiscal Studies report notes: “While income remains important, it is wealth that is increasingly at the heart of the most pressing economic inequalities today.” UK wealth inequality is even more extreme than our high levels of income inequality; the top 1% hold over 20% of wealth compared to 13% of income.

One reason for this is that our tax system is deliberately designed to tax income from wealth at lower rates than income from work. As a result, the average effective tax rate for someone on £10m a year is less than that of someone on the median earnings of around £30,000. Tackling such tax injustices should be at the heart of the labour movement’s response to Tory austerity 2.0 – there is huge scope for increasing tax revenues by ending the significant tax discounts afforded to the wealthy.

This is an argument that we can win. There is already widespread agreement that ordinary people don’t get their fair share of wealth and that the wealthiest should pay more – including from six in ten Conservative 2019 voters. So, what would higher taxes on wealth look like? Below are some examples that alone could raise £45bn per year:

Ending the lower tax rates for capital gains and share dividends: Someone who lives off the income they get from share dividends or from profits when selling assets like second homes currently pays less in tax than someone earning the same amount by going out to work for a living. That is simply indefensible. Scrapping these tax advantages would raise around £22bn per year. Even Margaret Thatcher’s own Chancellor Nigel Lawson raised capital gains tax rates to match income tax rates. And the Treasury’s own Office of Tax Simplification recommended this to the then Chancellor Rishi Sunak in 2020.

Introducing an annual wealth tax: An annual tax of just 1% on all net wealth above £10m would raise nearly £10bn per year, according to the UK Wealth Tax Commission. It would affect just the wealthiest 0.04% of the population. Such a tax would only apply to wealth over £10m and so, for example, someone with £12m in assets would pay £20,000.

Extending national insurance contributions to investment income: NICs only apply to earnings from work and not to all income. They are not paid, for example, on rental income from property. An excellent new ready reckoner on Wealth taxes shows extending NICS to investment income could raise another £10bn alone.

Scrapping non-dom status: Rishi Sunak’s own family’s tax affairs brought the scandal of non-dom taxes back into the public spotlight earlier this year. Scrapping this tax advantage, as Labour is calling for, could raise up to £3bn per year. New research shows just 0.3% of those affected would leave Britain as a result. That’s fewer than 100 people – most of whom are paying hardly any tax under the current non-dom regime.

Further vast sums could be raised by increasing the rate of the windfall tax on oil and gas company profits and extending the levy across the whole energy sector. That could raise at least £50bn, according to new Labour Party figures. A windfall tax could also be applied to bank profits, which are set to rise as a result of higher interest rates. Spain’s progressive government is doing just that. And, if we are to increase taxes on income, it should be done only on the top 5% of earners – with a 45% rate on earnings over £80,000 and a 50% rate over £125,000 generating around £6bn per year.

Every Conservative attack on the living standards of the vast majority is always justified by claiming that there is no alternative. As a movement, we need to win the battle to show that there is and wealth taxes must be at the heart of it.