‘A fair programme to fund renewal’

Ours is a country awash with capital. Yet our capitalism is failing. The last 14 years have been brutal for millions. Austerity has buckled communities, including my own in east Birmingham. Yet Britain’s richest 1% have, since 2010, grown their wealth by £1tn. 

Were the rich smarter than everyone else? Did they work harder? No. The key to their success was the £895bn poured into the monetary system during quantitative easing (QE), which inflated asset prices. Yet QE was not free. The OBR estimates it will cost taxpayers over £108bn. We are all paying for QE – but its prizes went disproportionately to the very richest. 

READ MORE: ‘Britain’s wealth gap is growing – the Chancellor must address it’

To add insult to injury, those lucky enough to draw income from capital enjoy a rate of tax lower than everyone else. Take Rishi Sunak, who makes about £2m a year but who pays a tax rate of roughly 23 per cent. 

The unfairness of it all shows up on election days. In the places where wealth has grown slowest, populism has grown fastest. My analysis of the 2024 results shows that in the regions where the growth in aggregate wealth has been weakest, the Reform UK vote was highest. 

These basic truths lead to one conclusion – to defeat populism, we must fix wealth inequality. This must start with restoring fairness to tax. For too long, we have punished work and rewarded speculation. 

To her great credit, Rachel Reeves has taken action. The chancellor has hired more tax inspectors and reformed non-dom status. While the latter measure was controversial amongst some, it remains the single most popular tax reform measure amongst the public. 

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Where might future reforms lie? Here are four ways we could rebalance the tax system: 

1. Introduce windfall taxes on banks and energy companies. Both have enjoyed exceptional state-backed support – through subsidises and quantitative easing – and both have enjoyed windfall gains. Both are deeply unpopular with the public. So the economics of the past, and the politics of the moment, make this an obvious choice. 
2. Tax wealth like work. Levying national insurance on investment income would raise £3.1bn annually. Equalising capital gains tax with income tax, as Nigel Lawson once did, would raise £11.5bn, and potentially more if combined with an exit tax on the capital gains of those leaving the country. Even if we did not fully equalise, raising CGT rates combined with an exit tax would be effective and fair. 
3. Fix property taxation by replacing council tax and stamp duty with a modern, value-based property levy. A rate of around half a per cent on values would raise roughly the same £50bn as council tax – but far more fairly. It would end the absurdity of bills for a terraced house in Blackpool exceeding those of multi-million pound homes in Westminster. 
4. Reform inheritance. As the baby boomers shuffle off this mortal coil, we are about to see the biggest wealth transfer in history. Some £5.5tn will change hands. Reforming our loophole-ridden estate duty with a lifetime gifts tax paid by recipients could help share wealth better. We could use the proceeds to pay a one-off dividend of £10,000 to every young person to get started in life, a system I call universal basic capital. 

Together, these reforms would grow the economy, balance the books and begin to close the chasm between rich and poor. 

And if, after all that, extreme wealth concentration remains, we should at least investigate and collect the data needed for a one-off wealth levy on the very richest 0.1 per. This proposal is popular with the public, including among Reform voters. It would be hard to implement, because currently we do not have good data on which assets are held where. At a minimum, we should start collecting this data for estates worth over £10m so that we can study the true potential of a levy. 

Naturally, we need to be careful. We must avoid driving capital abroad, preserve incentives for risk-taking, and protect pensioners from unintended shocks. But the bottom line is simple. Taxes on capital must rise. If we get this right, we can use the money to reverse the extraordinary growth of wealth inequality – and inoculate our democracy against the populist poison that feeds on unfairness. 

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We will not defeat populism without higher levies on wealth. We will not rebuild Britain without restoring fairness to our taxes. And we will not restore faith in politics until people see that the rules apply to everyone. 

Britain isn’t short of wealth. It’s short of growth, investment, and fairness. This is a choice. Let’s choose differently. 

A full version of this article was originally published in a Fabian Society edited collection ‘Taxing Questions – How we raise the revenue we need’. Read the full collection here

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