New Wealth Taxes

Rebecca Long Bailey Excerpts

Tuesday 14th June 2022 Westminster Hall

[Rebecca Long Bailey (Salford and Eccles) (Lab)]

It is a pleasure to serve under your chairmanship, Sir Edward. I thank my hon. Friend Member for Leeds East (Richard Burgon) for securing this important debate.

I shall start by reading an excerpt from a letter to Klaus Schwab, the Executive Chairman of the World Economic Forum. It reads:

“The scandalous rise in the cost of living across the globe is not an unfortunate accident. It is the result of dogged commitment, from governments all over the world, to preserving the power and wealth of a tiny minority over the needs of their voting publics. It is a stunning commitment to failure and a constant suppressant on our economic and social prosperity…We must face it. People do not trust democracy because the prevailing global oligarchy is rendering it pointless. No matter how many people vote, if governments continue to listen to wealth over sense, the votes and voices of everyday people are not heard.

If you want to defend democracy you have to face facts. The divide between the very rich and the rest must close. The rich must be taxed.”

People might think that those are the words of a social justice movement or a left-wing political activist, but nothing could be further from the truth. The letter was actually written by millionaires themselves—specifically, a non-party political network of millionaires advocating action on economic inequality and higher taxes on themselves. They include groups such as Patriotic Millionaires, the “Tax me now” initiative, Millionaires for Humanity and 99%-Initiative, who recognise that hard work and entrepreneurship should be celebrated, rewarded and encouraged, but that we cannot do that effectively in a broken economic system that fails to address the gross divide between those with extreme wealth and the majority of everyday people.

Those millionaires and, I suspect, many more decent people like them recognise that something skewed has been happening in our economy over recent years, and they are right. “Taxing Extreme Wealth”, a recent report by Oxfam, Patriotic Millionaires, the Institute for Policy Studies and Fight Inequality, found that in the UK alone,

“Between 2016 and 2021, the number of individuals with wealth over $50 million increased from 4,375 to 5,330”.

The report also found that there were 56 billionaires in the UK, with wealth totalling $204.9 billion, and that throughout the pandemic, while many people struggled, the wealth of British billionaires actually increased by $41.06 billion. Indeed, the five richest billionaires have the same amount of wealth as the bottom 40% of British society.

That phenomenon has not happened overnight. The global free market race for the most competitive national tax rate has seen the top rates of personal income tax and capital income tax rates decline since the 1980s in leading industrial nations, and the income share of the top 1% has significantly increased. On top of all that, the tax system in the UK is littered with loopholes that allow tax avoidance, and there is little resource for Her Majesty’s Revenue and Customs to clamp down on tax avoidance or evasion. There are a number of inherent structural flaws, such as the absurdity that income from wealth is taxed at a lower rate than income from salary.

As we have heard today, the sad fact is that it does not need to be like this. We can take steps to reform our broken taxation system, and a wealth tax is one option to try to create such economic balance. Of course, there are many permutations as to how a wealth tax could be constructed: it could be an annual tax in tandem with wider, much-needed reform of our taxation system to address existing loopholes and structural flaws; alternatively, it could be a one-off tax in response to the covid pandemic and the cost of living crisis. Such detail requires deeper discussion than time will allow today, but I hope that it will be the next step after today’s debate.

Even millionaires are warning us against the injustices that they plainly see in our economic system. Further, they are warning us to take seriously the threat that rising inequality poses to democracy. It is up to all of us, whatever our political stripes, to embrace tax changes that would limit inequality and give our constituents the quality of life they deserve.

--- Later in debate ---

[The Financial Secretary to the Treasury (Lucy Frazer)]

It is a pleasure to serve under your chairmanship, Sir Edward. I congratulate the hon. Member for Leeds East (Richard Burgon) on securing today’s important debate. I know that he and others feel passionately about it, particularly—as many have mentioned—at a time when households up and down the country are struggling.

I propose to start my response by talking about the tax system and the degree to which wealthier individuals already pay a significant—and proportionately significantly greater—amount in tax. However, before I do, I want to recognise the important contribution that many wealthy individuals make to the UK economy. The Conservative party—this Government—supports entrepreneurship; we support wealth creation and we support ensuring that successful businesses in our constituencies contribute to our local and national economies. However, we also understand the importance of ensuring that wealthy individuals make a fair contribution and pay the tax that is owed.

That is not just our thinking of the moment; it is the way we have dealt with this issue for a number of years. We already have a very progressive income tax system, with the top 5% projected to pay nearly half of all income tax in 2021-22. The hon. Member for Leeds East mentioned the top 1%, and he may know that they will be paying more than 28% of all income tax.

The hon. Member for Hemsworth (Jon Trickett) mentioned other taxes, and the principles I have set out apply well beyond income tax, with several other taxes on wealth across many different economic activities, including the acquisition, holding, transfer and disposal of assets and income derived from assets. Those all generate significant revenue for the public purse. For instance, for this tax year—2022-23—the OBR estimates that there will be inheritance tax revenues of £6.7 billion, capital gains tax revenues of £15 billion and property transactions taxes of £17.1 billion.

The Wealth Tax Commission’s July 2020 report found that, taking the narrowest definition of a tax on wealth—that is, inheritance, estate and gift taxes—UK taxes on wealth were about average compared with other G7 countries. At the same time, Government policy is, and will continue to be, highly redistributive in the round. In 2024-25, on average, households in the lowest income 10% will receive more than £4 in public spending for every £1 they pay in tax.

The hon. Member for Christchurch (Sir Christopher Chope) made some interesting points about the downside of higher taxes. That is why we are committed to ensuring that we are a low-tax economy.

The hon. Member for Leeds East mentioned the Wealth Tax Commission’s report. That was an important piece of work, which set out a significant amount of detail. The hon. Member for Salford and Eccles (Rebecca Long Bailey) suggested an annual wealth tax, but she may be aware that the commission rejected the idea of an ongoing wealth tax, charged on an annual basis, for a range of reasons. It is true that it saw some potential merit in a one-off wealth tax, as the hon. Member for Leeds East said, but that does not provide long-term revenues for the future.

[Rebecca Long Bailey]

Is the Minister aware that the report did discount an annual wealth tax, and looked at exploring the possibility of an annual wealth tax if it was done in tandem with overall reform of our taxation system? Does she agree that our taxation system is long overdue an overhaul?

[Lucy Frazer]

The Government are making changes to the tax system, including through a number of measures to ensure that those on the lowest pay are paying fewer taxes. The Wealth Tax Commission identified that there would be some advantages to a one-off tax, but it acknowledged:

“although one can point to entirely new taxes introduced within the recent past, there are none on this scale.”

This is not a matter of lack of political will, as the hon. Member for Brighton, Pavilion (Caroline Lucas) suggested. This is not a measure that we would bring forward, for a variety of good reasons. Denis Healey, a Labour Chancellor of the Exchequer, came to understand that later in life, when he wrote of his time in office in the 1970s:

“We had committed ourselves to a wealth tax; but in five years I found it impossible to draft one which would yield enough revenue to be worth the administrative cost and political hassle.”