The final report of the LSE-Warwick University commission on wealth taxes has rightly drawn attention with its eye-catching proposal to raise £260bn from a one-off tax on millionaires. This would be quite a bounty for government, representing about 40 per cent of the UK’s annual tax take, or the equivalent of a 9p rise in the basic rate of income tax. Assessed in a single year but levied over five, the amount raised could start to redress the rise in wealth inequality over the last decade or more: the richest 10 per cent have seen their total wealth grow four times faster than the poorest 10 per cent in the last three years for which data is available, up to 2018, taking their share of national wealth to 45 per cent.
It is a sign of the political times that measures to reign in accelerating wealth inequality are finally being discussed. Yet much of the media coverage has focused on the supposed need to “repair the public finances” by paying back this year’s emergency coronavirus borrowing. If this was ever done, it would be a futile squandering of resources. Interest rates for government debt are the lowest in human history: at present, the government can borrow for the next 50 years at a rate of 0.75 per cent, somewhat below the rate of inflation. Half the current national debt is owned by the Bank of England, thanks to the quantitative easing (QE) programme, which has seen the central bank issue £895bn of new money to buy up government debt since early 2009. This year alone £450bn has been issued, which is easily enough to finance the entire additional spending in response to the pandemic.
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There is no reason to prioritise the repayment of this debt, just as there wasn’t after the last national spending emergency of comparable scale – the Second World War. In the decades following the war, the debt burden was reduced – even as the NHS was built, education expanded, and the modern welfare state established – by the simple device of allowing moderate inflation and growth to whittle it away. The UK is a far richer country today and should adopt the same approach. Unlike spending cuts, a wealth tax would at least make a dent in inequality, but using the levy to “repair the public finances” is to pour resources down a black hole. Worse than the waste of resources, however, would be the waste of a political opportunity to transform the economy.
New research, released by Oxfam this week, shows how closely tied wealth inequality is to the climate emergency. Between 1990 and 2015, the richest 10 per cent of EU citizens were responsible for over a quarter of EU emissions – the same quantity as the poorest half of the EU’s population. The disparity is unsurprising: richer people tend to travel further for work, and to fly more often – both for business and for their long-haul holidays. They tend to live in larger houses, requiring more heating in winter and cooling in summer. Across the globe, they eat more meat and buy more imports.
But what is really striking about the numbers is that, while the EU has slowly and inadequately adapted to the need for carbon reductions, with emissions falling by about 12 per cent overall since 1990, the burden of decarbonising has not been shared evenly. Emissions from the poorest half of EU citizens fell by 50 per cent and those from the “middle-class” group just above them in earnings fell by 13 per cent. But those at the top of the income pile, already making the greatest contribution to damaging the climate, pulled in the opposite direction, with the wealthiest tenth seeing their emissions increase 3 per cent and the top 1 per cent outpacing everyone, increasing their emissions by 5 per cent since 1990. For 30 years, the EU has combined slightly falling carbon emissions with rapidly rising inequality. As the Oxfam data shows, shovelling more wealth at the already wealthy has made combating climate change harder, not easier.
The UK shows the same pattern, with the richest 1 per cent increasing their emissions even as emissions fell for the rest of the population. Yet the two major parties are currently falling short. Labour’s “Green Industrial Revolution”, as presented in its election manifesto a year ago, was at its heart a massive state-led effort to decarbonise energy use in the UK. The Tories’ “Green Industrial Revolution”, notwithstanding the shamelessly purloined slogan, is a much-diminished version of the same approach, with private investment now expected to do the heavy-lifting.
But what the Oxfam report points to is the necessity of shifting consumption patterns too, since those with the greatest capacity to command resources are responsible for the greatest ecological damage. If we are serious about meeting climate targets, we cannot afford the luxury of rising inequality. The two are inseparably linked, and the political will must be summoned to address both together.
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The real opportunity presented by a one-off wealth tax is in the political possibilities it can open up. New Labour grasped this, once using a windfall tax in 1997 on the privatised utilities to pay for a “New Deal” to get unemployed youth back into work. A £260bn windfall could do something far bigger, permanently reshaping our economy: it could, for example, be used to establish a national wealth fund, asset-locked and kept out of the Treasury’s hands, which could be invested in a real green industrial revolution.
Better yet would be to place separate wealth funds at the service and in the control of the regions, as recommended by former Goldman Sachs chief economist and Tory minister, Jim O’Neill, allocating fair shares across the country. The sums involved would be transformative. There is an opening here for a bold party leadership to make the case: a huge political, environmental and economic win-win.