“We need to limit the arbitrary tax advantages of the richest individuals in our society,” is a soundbite that could be straight from the Labour Party playbook.
However, it’s actually from the manifesto that propelled Rishi Sunak and Boris Johnson to an 80-seat majority in last year’s general election.
That phrase looms large today as Sunak confronts a pandemic that is hitting the disadvantaged hardest, while its economic fallout is decimating the dreams of another generation of young people.
It’s important to keep this all in mind when reflecting on the Labour Party’s seemingly mixed messaging about a net wealth tax in the last few days. Because the truth is all politicians are being forced to take the UK’s entrenched inequalities seriously.
And given the way Covid-19 has revealed the fragility of our public services and its disproportionate impact on disadvantaged people, it is surely proper that both political parties grasp this nettle.
Today’s mini-budget will focus on dolling out more cash to combat the effects of shutting down our economy. In the short term, a combination of cheap debt and money creation will get us through this immediate crisis. Over the longer term, Boris Johnson has promised repeatedly that there will be no return to the failed austerity of the past that left the country badly unprepared when the coronavirus crisis hit.
Johnson would be wise to make good on his promise. On the eve of lockdown polling by my organisation, Tax Justice UK, revealed a country fed up with cuts, tax avoidance and the type of clever accounting loopholes open to big companies and wealthy individuals.
As we emerge from the pandemic there is a chance to reshape our economy so it better serves all of us. This has to involve investment in high quality public services, tackling our entrenched levels of inequality and measures to deal with the climate emergency.
And taxing wealth more effectively will be key to this. A recent study found that some of the richest people in the country pay lower tax rates on the income they receive from their wealth, than the average nurse or hospital cleaner.
If politicians are to tap the enormous growth of wealth the UK has accumulated in recent decades then the public will need to be reassured that corporations and the very wealthy are paying their fair share too. Sunak could start by equalising the tax that people pay on income from shares and dividends at the same rate as the tax people pay for going out to work. This is a reform of wealth taxation that Margaret Thatcher backed when it was introduced in 1988, hardly radical stuff.
The mixed messages from the Labour party on a high net wealth tax are a sign that the politics of wealth taxation are really shifting. And the truth is that this is a conundrum for the Conservatives just as much as it is for Labour.
Even before coronavirus the Conservatives promised significant investment to “level up” the country. In the long run, this means that tax rises are on the cards. Support for progressive tax reform is starting to emerge in Conservative ranks, while public opinion is supportive of reform. Sajid Javid, a former Chancellor, and usually associated with the small government wing of the party, recently called for a shift away from taxing income to focusing on property and pensions, the two biggest stores of private wealth in the UK.
Make no mistake, reform will be a tough job for a Conservative government simultaneously beholden to new working class voters in the Red Wall, who feel neglected, and shire Tories who have grown used to a diet of tax cuts. But it is a task that, politically, the Conservatives cannot afford to avoid. The alternative is that those who want lower taxes and a bonfire of regulations succeed and leave the country even less prepared for the next big crisis.
Some on the right have long argued that inequality is not as severe as we might think. The editor of the Spectator magazine, Fraser Nelson, points to official statistics showing that income inequality has been flat, or even falling, over the last few decades. But new research has exposed that we’ve been underestimating inequality for 20 years at least.
After 2008, considerable effort was put into arguing that the nation was “all in it together” and that among the losers in the age of austerity were the ultra-rich. As it turns out, this argument was wrong. However, today there is an extraordinary political opportunity to roll back some of the race-to-the-bottom in tax policy that we’ve seen since the 1980s, alongside encouraging more responsible tax practices by business and enacting higher taxes on wealth.
Sunak has already shown that he can think big when faced with a crisis. As the country builds back better, increasing taxes on wealth will seem like the obvious choice.
Robert Palmer is Executive Director of Tax Justice UK