Could Rachel Reeves have introduced a wealth tax instead of benefit cuts? Economists say yes
Economists told Big Issue that a wealth tax could generate as much as £24 billion a year – five times the £4.8bn Rachel Reeves expects to save from welfare cuts annually
This week’s Spring Statement was a “massive missed opportunity” to implement a wealth tax, economists and campaigners have warned.
Stalling growth, surging borrowing costs, evaporating fiscal headroom: Rachel Reeves is in a bind.
Faced with this bleak economic outlook, the chancellor has opted to slash welfare and public spending, axing £4.8 billion from disability welfare. She claims to have little choice.
“The responsible choice is to reduce our levels of debt and borrowing in the years ahead so that we can spend more on the priorities of working people,” Reeves told the Commons. “And that is exactly what this government will do.”
It is this logic of inevitability that underlies government cuts – slammed by campaigners as a form of austerity.
But are the cuts really so inevitable – or could there be another way? Yes, say economists.
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“This Spring Statement is a massive missed opportunity to generate a significant amount of wealth by taxing the most wealthy,” Caitlin Boswell from Tax Justice told Big Issue.
“Over a decade of austerity has already stripped away support for the most marginalised, and it’s simply a choice that the government did not need to make.
“The UK has an alternative option on the table that would allow us to avoid any cuts, and that’s a wealth tax.”
A wealth tax is – to put it simply – a tax on wealth. A bit more detail: according to policy experts at the Wealth Tax Commission it’s a “broad-based tax on the ownership of net wealth”.
That means a tax on most (or all) types of assets that a person owns, rather than a levy on a specific type of asset like property. Net wealth means a person’s wealth minus any liabilities or debt.
Applying a 2% tax on assets over £10 million could raise up to £24 billion a year, Tax Justice claim. Around 22,000 people would be impacted.
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On the other hand, the DWP’s health and disability benefit cuts will put an extra 250,000 people, including 50,000 children, into relative poverty – and that’s by the department’s own forecasts.
“A wealth tax is enough to fix the hole in the public finances without all of these brutal cuts. The very wealthiest really can afford to pay a bit more,” Boswell said.
The policy is broadly popular with the public. According to Oxfam polling released this week, 77% would rather the UK government increase taxes on the very richest than see cuts to public spending. An even greater number (78%) support introducing a 2% wealth tax on net assets worth more than £10m.
“This sort of policy is really popular,” said Hannah Martin, co director of Green New Deal Rising.
“There’s a narrative of inevitability around cuts, but the wealthiest in society are experiencing year on year increases in their net worth. So you have to sort of ask yourself – who are they growing the economy for? Who is benefiting from this set of interventions?”
Critics of a wealth tax claim it would see a mass migration from Britain’s wealthiest. But research questions this claim.
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Analysis by Arun Advani from London School of Economics found that up to 17% of the people in the wealth tax bracket would leave the country – but that the state could still raise around £10bn a year from a 1% tax on assets over £10m.
Indeed, some millionaires are actively calling for the tax.
“Some decisions come down to a matter of choice,” said Patriotic Millionaires UK member Julia Davies.
“Today’s Spring Statement confirmed the British people’s fears: working people and the most vulnerable will continue to bear the brunt of our struggling economy. We millionaires should be required to pay more in taxes.”
“[But] Instead of asking those who have benefited most from our economy to contribute a little more, the government is choosing to further cut welfare – despite over a decade of austerity that has already eroded the social safety net for disabled people. This is a decision they do not have to make.”
The wealth tax is a big idea. But a series of smaller reforms and loophole closures could also make a serious difference, says Boswell.
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She said: “The main one is reforming the capital gains tax, equalising it with income tax.”
Wealth is taxed more lightly than work in the UK. Someone making £50,000 per annum purely from capital gains – say, from selling a house and making a £50,000 profit – would pay around £6,000 less than someone who earned £50,000 a year from their salary alone. The highest rate of capital gains tax is 28%, as opposed to the 45% higher rate of income tax.
In short, a nurse or a teacher will pay more than someone making the same amount of money from selling property.
“Reforming the capital gains tax system through increasing rates and closing loopholes could raise around £12bn a year,” said Boswell.
“So that’s already around three times what these disability benefit cuts will save.”
