“The rich get richer and the poor…” People have long known how that phrase ends, but the astonishing accumulation of wealth in a few hands is now attracting attention from Oxfam through to Davos and the IMF. Eight billionaires are reported to own as much as the bottom 50 per cent of the world’s population. In the UK, just 10 per cent of adults own half of the nation’s wealth.
But why would this trouble the IMF? The answer is that such concentrations of wealth are dysfunctional for the economic system. They happen because wages are repressed and the richest use their wealth to speculate on assets that are in short supply, such as housing or land, producing sky high prices for property and rents. A single building in Hong Kong has just sold for $5bn. The effect is that small businesses close as rents are high, it is difficult for labour to move and there is a reduction in aggregate demand. Put simply, people can’t buy goods and services if most of their money is going on rents and mortgages. To keep up in this scramble, the population becomes laden with debt and those who sell the loans become even richer.
To reverse this process, the state should intervene very firmly and tax wealth. The question is, which politicians are going to put their hands up first and say they are actually going to do it. In Scotland, Richard Leonard has now proposed the policy as part of his Labour leadership campaign. His suggestion of a 1 per cent tax on the wealth of the richest 10 per cent would raise £3.7bn to invest in the economy. This is a good start, since it is important to establish the principle that this form of taxation can be developed.
In 2010, I suggested it as an alternative to the cuts and austerity programme which was then being initiated. My proposal was for a tax of one fifth of the wealth of the richest 10 per cent in the UK, which would then would have been sufficient to pay off the entire national debt. In Scotland, we now have the chance of taking up the possibly that was missed. It is certainly needed here, since our level of private wealth and ownership is extreme, with less than 500 individuals owning half of the non-public land.
The first questions that are always asked about such a tax are on its practicality – will rich people agree to pay it? How could it be assessed? Would people not avoid it or move their money to tax havens? The answers are that rich and poor must obey the law, which includes paying taxes, and it is not an easy tax to avoid. The Highlands cannot be moved to the Cayman Islands. More importantly, tax avoidance is becoming a major public issue and the winds of international opinion are against it; the days of tax heavens may be numbered.
Assessment can also be undertaken without any great additional investment by the state. Taxation for the self-employed is currently based on self-declaration, by filling in a tax form. It would be necessary only to add a new section to the existing declaration in which total assets and their value is stated. The rich in practice know exactly how much wealth they have 0 in property, pensions and equities. The Sunday Times rich list routinely makes such calculations. The latest of these shows that the richest 1,000 people in the UK are now worth £547bn compared to £258bn in 2009. For this tax, the under-declaration of wealth might be an issue. If proved, it should result in fines or the state might reserve the right to purchase the assets at the declared value. If you say your diamond tiara is worth a fiver, then the government would have the right to buy it for that.
Another reservation expressed is that wealth is sometimes held in property by people who have relatively low incomes. In which case, payments can be deferred and interest remitted on what is owed with a final sum being paid as a form as deferred death duty. The tax should also be seen as fair, so it should be graduated with the very richest paying a higher percentage of their wealth.
There has probably never been a better or easier time to introduce a tax such as this. Money is now simply electronic blips and its transfer and movement is being increasingly monitored with strict regulations on laundering and transparency. The power in this lies ultimately with the great population of the world and their governments which control financial systems – not in the end with wealthy individuals hiding in tax havens.
Greg Philo is Professor of Communications and Social Change at Glasgow Universty and research director of the Glasgow Media Unit