Wealth taxes have huge popular support: 78% of people in the UK support higher taxes on those who own assets worth over £10 million.
When it comes to convincing politicians, however, the issue of wealth taxes can become more contentious.
We asked our readers to send a message to their MP requesting they back wealth taxes. 6,500 emails were sent to over 98% of MPs. (You can still send a message here).
We received some supportive responses from MPs. But many were critical. Negative responses to taxing the super rich more aren’t uncommon.
We decided to respond to some of these criticisms – so below we debunk the most prevalent myths around wealth taxes.
1. Don’t the richest already pay the most in tax?
Often the very rich will be paying more pound for pound in tax than less well off people, but their tax rate (IE the percentage of their income they pay) will be much lower. For example the top 1% of earners contribute a third of all tax income received by the Treasury pound for pound. However the bottom 10% of earners have an effective tax rate of 44%, which is more than twice as high as those in the top 0.01% (21%). We believe this is unfair. A billionaire should never pay a lower percentage of income tax than the secretary or cleaner in their office.
2. Doesn’t the UK already have taxes on wealth?
The UK does have some taxes on wealth but these do a very bad job of ensuring that very rich people pay their fair share. The UK is also lagging behind changes made in many other countries. In Spain, a net wealth tax was implemented in 2011, which has led to an increase in the number of taxpayers and the amount of revenue collected.
In the US, President Joe Biden is looking to introduce new taxes on billionaires to invest in green growth, lowering inflation and cutting the US deficit. If just one of Biden’s policies was adopted in the UK - the introduction of a tax on ‘share buybacks’ - we could raise an extra £2 billion a year, according to the think-tank IPPR.
3. If wealth taxes are increased, won’t rich people just move abroad?
Studies have shown that most wealth holders who live in the UK have ties here, want to be here, and want to contribute as citizens. Tax levels are a minor factor in their decision to relocate in comparison to factors such as family and social ties, schooling, and overall economic stability. Our tax proposals would only lead to a very small amount payable relative to the net worth of people’s assets.
For example, the 1-2% tax would only apply to assets above the £10 million threshold. It would not tax assets below the £10 million threshold. This would mean someone with £11 million in assets would only pay £10,000 - £20,000 a year, because they would only be taxed on their assets between £10 - £11 million, not on anything below £10 million.
Existing evidence on reform of the non-dom status showed that increasing taxes on the super-rich led to a minimal number of individuals leaving the UK. Reforms in 2017, which restricted access to the non-dom regime, led to just 2% of those who had been in the UK for fewer than 3 years leaving, the number was significantly lower for those with longer- term ties to the UK.
4. In Norway, wealth taxes have lead to the rich fleeing the country
The recent experience of a marginal increase in wealth taxes in Norway has led to some misleading and hyperbolic media reports that the rich are fleeing. Of 236,000 millionaires and billionaires in Norway, the relocation of 30 – while substantially higher than in previous years – still amounts to a mere 0.01% of Norway’s millionaire and billionaire population. The lost revenue from the leaving millionaires comprises a small percentage of the revenue gained from the increase. For any substantial cost to the economy to occur, academics Arun Advani and Andy Summers, have estimated that the migration response would have to be more than 15 times larger than this.
5. Can’t the rich just voluntarily pay more tax if they would like to?
This misses the fundamental point that tax is designed to raise revenue for shared, public services. If just a few opt to pay more, it would not provide the level of investment our public services and economy so urgently need. It’s also about fairness. Why should one group get to decide if they want to pay tax – while others don’t have that choice? Workers, for example, can’t decide if they want to pay income tax. It is the government's responsibility to create a fair tax system that is compulsory, not voluntary.
6. The 2020 Wealth Tax Commission said that introducing a wealth tax in the UK would be hugely complex, and that instead of an annual wealth tax, the government should reform existing taxes on wealth.
This isn’t quite correct. The Commission made various recommendations, none of which precluded the feasibility of an annual wealth tax to act as a solution for ongoing structural inequality and long-term public financing. The Commission was assembled to assess wealth taxes as a solution to the public finance crisis left by COVID-19. In this context, the Commission recommended a one-off wealth tax would be simpler and more efficient to implement than an annual wealth tax, as a solution to the COVID-19 crisis. This is because a one-off tax is an exceptional response to a particular one-off crisis.
The Commission also recommended a package of reforms to existing wealth taxes as a priority, including capital gains, inheritance tax and council tax, since the existing system is complex, dysfunctional and unfair. And it also concluded an annual wealth tax would be feasible in addition to these measures, and also the best mechanism if the aim was to specifically reduce inequality. Fixing existing taxes or levying a one-off tax will not rebalance long-term structural inequality.
Additionally, setting a very high threshold for an annual wealth tax makes it vastly easier to administer. At a £10 million threshold, it would only affect 0.04% of the population – approximately 20,000 individuals.
7. We have the highest peacetime taxes in the country’s history, we can’t raise taxes anymore.
The level of taxes in the UK is about average compared to similar countries. Many European countries have much higher levels of tax than the UK. At Tax Justice UK, we don’t want to raise taxes on working people. We want to raise taxes on super rich people who derive their income from wealth. The effective tax rate on working people is the highest it’s ever been, while the richest in our society, whose wealth is ballooning by tens of billions of pounds every year, pay a much lower tax rate. For example, Rishi Sunak, who earned nearly £2 million in 2021-22, has an effective tax rate of 22%, while an average doctor in London pays 40% in tax. This is because taxes on income from wealth are much lower than taxes on work, and the Prime Minister made most of his income from returns on dividends and capital gains.
In this context, the government has chosen to increase taxes on working people (by freezing income tax thresholds) rather than looking to the wealthiest. In fact even the wealthiest pay very different rates of tax, depending on the source of their wealth. A study found, the average person earning more than £2 million had an effective average tax rate of 40%, while the average person with total remuneration of £10 million from capital gains, has an effective tax rate of just 21%. It’s even unfair for the super-rich!
8. We don’t need more taxes. Taxes already fund public services adequately.
The majority of the British public would disagree with this statement. The state of the NHS is the third most cited public concern currently, running behind the economy and inflation. Polling from October 2022 found that a third (34%) of the public thought taxes and spending on public services should remain at current levels, while 26% thought there should be an increase in tax to increase funding. Only 22% said that taxes should be reduced and less spent on public services.
9. Inequality in Britain is not something to be concerned about
The UK has a very high level of income inequality compared to other developed countries. We are the second most unequal country in the G7 and one of the most unequal countries in Europe. Vast levels of wealth inequality are destabilising for society and democracy and the majority of people in the UK are concerned about it - recent polling from the Fairness Foundation found that seven in ten are concerned about a society in which some have wealth of over £10 million while others live in poverty.
Inequality in the UK has been high since the 1980s, with the share of income earned by the top rising, peaking at 14.7% in 2007 before the financial crisis. This is almost double the corresponding figure for Belgium (7%) and still higher than Australia (9%), Sweden (8%) and Norway (8%), to name a few.
Wealth in Great Britain is even more unequally divided than income. In 2020, the ONS calculated that the richest 10% of households hold 43% of all wealth. The poorest 50%, by contrast, own just 9%. The wealth gap has reached record levels, thanks primarily to the appreciation of assets such as property, relative to the decline in household incomes.
10. Wealth taxes would be bad for the economy and business
There are many compelling arguments that higher taxation of wealth in the UK could contribute to a more dynamic economy and stimulate growth, and that extreme concentration of wealth has damaging economic effects. Investments made by the super-rich tend to be less productive than those made by working people. Investing in share buybacks and dividends, for example, diverts financial resources away from the ‘real’ economy and reduces productive investment.
With the UK having suffered decades of low productivity and wage stagnation, an increasing number of academic studies are finding that fairer taxation of wealth is a path to a healthier and more dynamic economy. Redistribution can create a healthier economy in which working people have more financial freedom, thus raising demand for goods and services and benefiting British businesses and high streets. Tax Justice UK has set out how six changes to taxes on wealth could raise £50 billion annually to invest in health, education, research and development, and national infrastructure, creating a healthier and happier workforce and encouraging productivity growth.
11. Billionaires create jobs (e.g., Amazon has over 1 million employees). Will they stop doing so if we tax them?
High taxes on corporations and the wealthy existed side by side with record-high levels of job creation and increases in standards of living across the developed world for 50 years. The top rate of corporate tax in the US averaged above fifty per cent in the 1950-1960s. Furthermore, slashing taxes means that governments have much less to invest in the economy, which itself stunts job creation. Many thousands of teachers, nurses, firefighters, and scientists cannot be hired when the super-rich do not pay their fair share in taxes.
12. If a wealth tax didn’t work in France, why would the UK be any different?
France’s wealth tax is often cited as an example of why wealth taxes don’t work. The French wealth tax was in place until 2017 when it was abolished by current President Emmanuel Macron and replaced with a similar tax on property, not business or shares. It has been noted that the previous wealth tax did not raise significant revenue - just 5 billion euros in 2015 which was less than two percent of France's tax receipts.
The tax implemented in France is vastly different to the policy we at Tax Justice UK propose for the UK. The French tax had a low threshold, with households with assets in excess of €1.3 million liable. Whereas the policy recommendation for a UK wealth tax sets a very high £10 million threshold. This limits the number of people that would need to pay the tax - in the UK it would only be 20,000 individuals compared to 343,000 households in France - which makes it far less complex for HMRC to administer. Setting a high threshold also allows exemptions to be limited. This was a significant issue in France, where badly designed loopholes enabled avoidance and limited the tax’s revenue potential.
It is also worth noting that the repeal of France’s wealth tax prompted backlash from a significant part of the population, and the reinstatement of the wealth tax was one of the main demands of the ‘gilets jaunes’.
Oil companies have been announcing huge profits this week. Today Shell reported a £7.6 billion profit in the first quarter of the year. While BP made £4 billion profit.
In a cost of living crisis fuelled by soaring energy costs, these profits are obscene.
I was on GB News on Tuesday calling for a beefed up windfall tax – and an end to the tax loopholes used by oil companies – to claw back some of that profit.
Boom time for the rich
Both Shell and BP are using those profits to reward their shareholders. Firstly by increasing the dividends they pay shareholders. Secondly, by share buybacks. This where a company buys its own shares in the market in order to boost the listed price, further rewarding shareholders.
But it’s not just oil companies. Across the UK many big companies are posting huge profits, as their prices soar. The top 350 companies in the UK have doubled their profit margins since 2019, research from Unite the union found.
Why is this happening? Many companies are using the cover of inflation to push their prices up beyond their increased costs and so making more profit. Unite has dubbed it “greedflation”.
Overall, this means that the ‘flows of wealth’ from ordinary people to the rich are increasing. And this is driving inequality.
Inequality growth in the UK has been put into hyperdrive by this cost of living crisis, as big companies and the rich drain more and more wealth from the rest of us.
We need to act together
It’s never been more urgent that we tackle this inequality. And that means addressing the ballooning wealth of the super rich.
We’re in a cost of living emergency. Those with broadest shoulders must be made to pay more tax to support the country and society that have helped them thrive.
We have developed 6 wealth tax policies that could raise £50 billion a year. This money could be used to help support households struggling in the cost of living crisis – and better fund our NHS.
A lot of this is about fairness. We want to see those with huge wealth taxed at the same rate as those who work.
This would address the hugely unfair situation where those with income from huge wealth often pay less tax than those who work. For example, our prime minister Rishi Sunak paid an effective rate of tax of 22% on his £5 million earnings. This is the same effective tax rate paid by the average nurse.
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