This is post is based on a comment piece we wrote for CIty AM this week.
A political row about wealth could be about to kick off over who should bear the cost of funding our public services after Covid.
Experts led by the London School of Economics and Warwick University this week announced a plan that could raise £260bn through a one-off five per cent wealth tax on millionaire couples. The Wealth Tax Commission included economists, lawyers, think tanks and professionals who advise the very wealthy.
The tax would be paid by UK residents with personal wealth above a set threshold. It would include all assets such as main homes and pension pots, as well as business and financial wealth, but minus any debts such as mortgages. It would be paid in instalments over five years, and apply only to wealth above the threshold.
Read more: UK has ‘significant’ ethnic wealth gaps, latest data suggest
Such a tax would not only help fund the Covid recovery. It would show the public that the government is serious about confronting inequality.
We are an incredibly wealthy country with more than£14 trillion in pensions, property and investments. But that wealth is not shared equally.
Inequality is extremely damaging our country. For many, no amount of hard work is enough to overcome this disadvantage. Someone earning £26,000 a year today would have to save every penny, for 96 years, just to reach the wealthiest top 10 per cent, according to the Resolution Foundation.
It’s a matter of racial injustice too. For every £1 owned by a white person in the UK, households of Pakistani descent have around 50p, of those Black Caribbean descent around 20p, and those of Bangladeshi descent have a measly 10p, according to the Runnymede Trust.
And women are hit disproportionately hard too. Out of the £96bn earned in income from wealth in the UK, only 35 per cent goes to women.
These are the warning signs of an economy that is dangerously off-balance. Our economy could be a vehicle to healthy, prosperous and hopeful lives for all. But right now, if you are a middle earner, a woman, or from an ethnic minority, the road ahead is more likely to be blocked.
We need to get back on track. And at this moment, with the economy reeling from the pandemic and fierce debates raging about how to fund it, politicians have the power to change direction.
Whether this government could vote through such a tax in the current political climate is another matter. But make no mistake, changes are afoot. Whatever happens, as we recover from Covid it is right that those with the broadest shoulders bear the heavier load.
And there are other options besides a new tax. Rishi Sunak is considering a plan to make those earning thousands through capital gains pay a fairer rate of tax. There are also rumours he could end the pension tax relief bung that sees higher earners given a bigger incentive to save for old age than people on lower incomes.Our research at Tax Justice UK found that both of these ideas would have significant public support.
When it comes to deciding how we should pay for the economic enormity of the past year, we should remember that the Prime Minister has vocally ruled out a return to austerity and deep public service cuts. Note too that, whatever the traditional political norms, the first Covid lockdown sawConservative voters shift towards support for higher taxes, mirroring wider mood among the general public.
In the past, when there has been a need to raise cash politicians have turned to the nation and announced that “with a heavy heart” they need to put up income tax and VAT.
This time around there are other options on the table. A wealth tax could help ensure that the Covid budget blackhole is funded by those with the most resources to contribute, leading to a less unequal, more just outcome for all.
It may sound radical, but those disadvantaged by our current economic system want politicians to deliver.