This article by our Executive Director, Robert Palmer, first appeared in Tribune magazine.
Last year saw middle class Brits squirrelling away cash at record levels with savings piling up in the bank accounts of the so-called “sourdough savers.”
If like me, you have spent the majority of the pandemic working from home, not commuting, unable to go out and not travelling, then it’s likely that the state of your household finances are a rare chink of light in hard times. For many, 2020 was a bumper year financially, with the Bank of England stating that extra savings were concentrated in the wealthiest households.
For others the financial impact of covid has been bleak.
Despite various government support schemes, for example furlough, nine million people have had to take a loan out because of the pandemic. The Resolution Foundation reported serious financial stress, with 54% of families on the lowest incomes being forced to borrow to pay for food and housing.
This deep division is not new. Last week it emerged that the UK was already at a decade long high in terms of income inequality.
The incomes of the poorest fifth of households were in freefall before covid, down 4.8% since 2010. For “just about managing families” on average earnings, wages grew by an average of just 0.8% between 2011 and Spring 2020.
Before the pandemic a household on the average wage would have had to save every penny, for 96 years, to reach the wealth of the top 10%. The economic fallout from the pandemic will doubtless have delivered a hammer blow to those, admittedly abstract, prospects.
Those who entered the crisis struggling have been hit the hardest, while the bank balances of many wealthier families have done well.
An economy that fails to guarantee good health and prosperity for the most vulnerable - whether in the midst of a global pandemic or not - is an economy that is fast running out of road.
The big political question this year will be how to recover from the pandemic in a way that’s fair and sustainable. The Shadow Chancellor of the Exchequer, Anneliese Dodds, spoke recently of her fear that a form of austerity and tax rises will be imposed in the next 12 to 18 months to give the government space to offer fresh tax cuts before the next general election.
With tax rises on the cards, politicians are already asking “who will pay?”
For me, it’s clear that the answer has to be profitable companies and those with substantial wealth. Our tax system currently focuses too much on taxing consumer spending and income from work.
There’s growing economic consensus that we need to do a much better job of ending the unfair advantages for the wealthiest in society. These include reforming capital gains tax so that income from wealth is taxed at the same as income from work. This would end the spectacle of hedge fund managers getting away with paying lower tax rates than nurses.
Other ideas include reducing the cushy pensions tax relief that higher earners get compared to lower earners, reforming our wildly dated and unfair council tax system and raising corporation tax.
All these ideas were backed by a group of 18 organisations, including Oxfam, Jubilee Debt Campaign and the Institute for Public Policy Research, who joined us last summer in calling for progressive tax reform post-covid.
Another idea floated toward the end of last year was for a one off wealth tax for millionaire couples. It’s unlikely this government would introduce such a policy, but the fact that think tanks, academics and lawyers agreed such an idea is technically possible has made a lot of people sit up and think.
All these well thought out proposals show that there are options for the government other than slapping a VAT or income tax hike on people who are already struggling to get by.
Increased taxes on wealth are a no brainer electorally too, especially in the so-called “red wall,” where communities are crying out for better public services and investment after years of economic loss.
Tax Justice UK’s own polling and focus groups from last year found significant support for taxes on wealth, with 74% of people wanting to see wealth taxed more, including 64% of Conservative voters and 88% of Labour voters.
We found strong Conservative voter support for increases to capital gains tax and corporation tax. Conservative support for higher corporation tax actually leaped from 61% to 74% between our March and June polls last year.
All of this should make it a political no brainer to close the loopholes that allow wealth to be under-taxed. Those with the broadest shoulders must pay their fair share.
The pandemic has put into stark relief our broken economy. But inequality is entrenched as a consequence of long term political and economic decisions.
If our achievement in turning around this pandemic teaches us anything it is surely that we need to raise the bar on what is achievable in other areas too. We cannot continue with an economic system that fails so many people. Tax justice must be at the heart of any reform package.
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