“Don’t strangle the goose that laid the golden egg”, pleaded the Tory MP, Bernard Jenkin yesterday after the Liberal Democrat leader, Nick Clegg, called for a wealth tax. Now, where exactly is this golden egg, I wonder? Could it be in the City of London, where some very wealthy people laid an egg of another kind recently that brought the country to its knees. Perhaps it is in British manufacturing, which has dwindled to 11% of GDP. Or have the golden eggs perhaps been deposited in feathered nests abroad?
It is astonishing that anyone still subscribes to the myth that the enrichment of the few leads to the prosperity of the many. It just doesn’t happen. Wealth does not “trickle down” to the rest of society from the troughs of the very rich – if anything the reverse is the case. It is sucked up through the concentrations of asset wealth held by the top 1% in property, shares, bonds. The story of the last three decades is that the wealthy have become immensely, shockingly, incomprehensibly richer while the middle has been squeezed and the poor remain pretty much as they always have – at the bottom of the heap struggling to hold their lives together.
According to the Organisation for Economic Cooperation and Development (OECD) income inequality in Britain has risen faster since 1975 than in any other developed country. The top 10% have incomes 12 times higher than the bottom 10%. That may not seem extreme, but the share taken by the top 1% has doubled to 14% of national income. The earnings of top executives, the top 0.1%, have risen 4,000%. in the last 30 years to 5% of pre-tax earnings. Britain has not seen income inequality like this since the 1920s.
But it is in wealth that the real changes have occurred. According to the Office of National Statistics, the top 10% now own nearly half of the wealth of the country – 44% or £4.5 trillion – and the top 1% own nearly a quarter. It’s true that the top 10% also pay around a third of all income tax, but that’s largely because they have come to own so much of the wealth. As a proportion of their earnings, they are paying a fraction of what they would have been paying thirty or even twenty years ago. As we know tax avoidance has become a national obsession.
I’m sure these figures come as no surprise – we all know what has happened since the Thatcher revolution But an alarming number of politicians of all parties continue to believe, and a lot of voters agree, that taxes are too high, that they are a disincentive to work, that they make entrepreneurs leave the country. Well, the bonus culture of the financial aristocracy, where the most ruinous practices were generously rewarded, should have punctured the incentive myth.
And speaking personally, I’d be intensely relaxed about the banking kleptocracy leaving en masse to wreck some other poor benighted land. Unfortunately, you can’t guarantee that this will happen – even in Iceland, where they forced the banks to take the hit for the financial crisis and protected ordinary peoples’ bank deposits. Iceland has had an emergency wealth tax since 2010 and guess what? They’re still there. Mind you, that is partly because some of the bankers, and also the former PM, Geir Haarde, are answering in the courts for their actions. If only…
No, the claim that national wealth is dependent on wealthy people has never been justifiable. The periods of greatest economic growth, and greatest prosperity, in countries like America and Britain were in the Fifties and Sixties when wealth and income were taxed at levels which would be inconceivable today. The economies then were stable and productive, largely because wealth was more evenly distributed. This meant that ordinary people could go out and buy things in the shops – creating the consumer economy. Very wealthy people don’t buy things – they invest and speculate in houses and shares – and therefore demand in the economy withers.
So, we should applaud Nick Clegg’s call for a wealth tax, even though he doesn’t mean it – after all he voted for the abolition of the 50% tax band on earnings over £150,000. The main wealth tax the Liberal Democrats propose is a bit of a joke: a mansion tax on homes worth more than £2m. In Scotland last year there was a grand total of 10 houses sold for over £2m, according to Registers of Scotland (and none of them were in Glasgow). But it would be better than nothing, I suppose. At least houses can’t be sent to tax havens.
Taxing other assets is difficult though not impossible. France levies a 0.5% wealth tax on net assets over £3m. Professor Greg Philo of Glasgow University has proposed a one-off, 20% tax on the wealth of the top 10%, which would not be paid up front but as a kind of national death duty. This might face practical difficulties – not least a flight of funds abroad of Greek proportions. But something like this might be preferable to the alternative, which is for all of us to be robbed by high inflation. Alternatively, there could be another windfall tax on city bonuses. Since most of the banks are either state owned or largely dependent for their survival on loans from the public purse, it is outrageous that they should still be distributing some £13bn a year in bonuses.
A financial transactions tax similar to the one envisaged for the eurozone would tackle the problem at source. Britain is furiously resisting a “Tobin” tax for reasons which are not entirely clear. We have stamp duty on house sales so why not on financial transactions? What we need to do (and here Mr Clegg is right) is reduce taxes on middle and lower earners – median earnings in the UK are still only around £26,000 – to restore some kind of economic balance.
This is not the politics of envy. Wages and salaries have been falling in real terms, and will continue to do so for many years. Redistribution of wealth is not just a moral issue; it is an economic one. We will have no sustained recovery until there is a recovery of demand in the economy and that isn’t going to happen while the rich get richer and the rest of us go hang.