After an uncertain start, the Budget offers Labour a chance to light up the story we told when we first launched our manifesto. Keir Starmer was bold: Labour’s number-one promise was wealth creation. But how to make good on that pledge?
Whenever we talk about wealth creation, the guiding question is simple: who are we creating wealth for? The last 14 years of Conservative rule have been very good for some. The top 1 per cent in Britain have seen their wealth grow by £1trn. The average 1 per-center has enjoyed a £2.2m boost to their fortunes since 2010, 41 times more than the remaining 99 per cent.
£850bn of quantitative easing (QE) kept interest rates low and saw asset prices soar. Returns for the lucky few were flattered further by low tax rates on capital gains. But while the richest captured the so-called QE prize, the £104bn bill for unwinding QE falls at the feet of every taxpayer.
Nine million people in this country have no savings. Five million have savings of less than £100. There are five million young people living with parents because they cannot afford their own home. And women on average retire with just £10,000 in their pension pots.
How to rebalance an unfair system? There has been plenty of noise in recent years about universal basic income – a system whereby every citizen receives an unconditional minimum income from the government. But my proposal is different: universal basic capital. This would see every citizen receive, at the age of 25, a once-off savings incentive into their bank account. Built in the right way, it would help us reach the old Labour ideal of a property-owning democracy.
The process should start with the automatic opening of a savings account for everyone starting work, just as we rolled out auto-enrollment pensions. In fact, the National Endowment and Savings Trust has just finished piloting exactly this idea. Known as “sidecar accounts”, they have been an unalloyed success. They should be general to the population.
Universal basic capital should see £10,000 of savings for every young person placed in these accounts, to help with a deposit for a home, kickstart a pension or to pay off student loans. Modelled on the young people’s “citizen’s inheritance” proposed by the 2018 Intergenerational Commission, the money should be a one-off dividend paid like a premium bond, from a much enlarged National Wealth Fund. Labour has proposed such a fund. But it’s much too small and we’ve said very little about what to do with the returns. The £200bn fund necessary to pay £10,000 to every 25-year-old could easily be built over five years with a mixture of state assets, some borrowing and foreign currency reserves, and one final step: a sensible mix of taxes on the windfall wealth enjoyed by a lucky few thanks to the QE sugar rush. Netting £20bn a year from a judicious mix of changes should be perfectly possibly without wrecking entrepreneurial incentives or returns to pension savers. And if we reinvest the money in helping the next generation build up assets, we have a political argument we can win.
New analysis of the 2024 elections shows a clear pattern on a bigger vote for Reform UK in regions and constituencies where wealth growth has been weakest. The spectre of populism is looming and if we do not propose radical solutions to wealth inequality, these votes will only multiply. Tackling populism will require a multi-pronged approach – the cultivation of a national story that everyone can believe in is a necessary part of this too. But material conditions are crucial. Universal basic capital is a 21st-century way to build on old left ideals.
Liam Byrne is the author of The Inequality Of Wealth. Why It Matters And How To Fix It out in paperback this month.
[See also: The QE theory of everything]
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