How far will this week’s budget go in ‘levelling up’ the UK in line with the government’s stated aims? Whilst much of the public debate has centred on what changes to taxing and spending the new Chancellor Rishi Sunak could make, there has been less analysis about how proposed measures could reduce economic inequality, which is surely a key hallmark of ‘levelling up’. Oxfam has been calling for better use of wealth taxes in global debates and across countries (such as India) for years, and we have suggested why the UK government should also make better use of wealth taxes here. Whether in low income or high-income countries, we are concerned that tax and spending decisions contribute to reducing poverty. And within countries, it is getting harder to reduce poverty without tackling economic inequality as the IMF and others recognise.
Interestingly, much of the public debate around possible budget measures concerns changes to forms of taxes on wealth, whether mooted abolition of entrepreneurs relief, changes to council tax or reforms to inheritance tax. Whilst these measures are welcome, discussing individual measures in the absence of agreement about the objectives of overall reform leads to disjointed policy-making, with the danger of unintended consequences. Instead, the government should use the opportunity of the budget to make careful changes. Where the tax system does promote arbitrary benefits for the wealthiest as outlined in their manifesto, the government should undertake a more holistic review of wealth taxation in the UK. This will mean planning long-lasting changes that will generate sustainable revenues in a progressive way.
The pattern of wealth distribution in the UK
Thanks to the December publication of the Wealth and Assets Survey, we now know more about the pattern of wealth distribution in the UK. Over the 12 years the survey has been running, households in the UK have gotten wealthier, with the median household wealth rising 9% to £286,600 in 2016-2018, from the two years previously. On one level, it seems that the pattern of wealth inequality has not changed much, since the shares of wealth are broadly the same as they were when the survey started, with the top 10% owning over 40% of all the private wealth in the country. But as the Resolution Foundation noted, focusing only on the shares of wealth, masks the significant growth in the gap between the wealthiest and the rest.
Looking in more detail about who has benefited in absolute terms from the increase in private wealth between 2006 and 2018, it is clear that already wealthy households have pulled away from others. The Wealth and Assets Survey groups households into wealth deciles. The wealth of the least wealthy 10% of households did see their collective wealth increase by £11bn over the 12 years, but the wealthiest 10% of households saw their wealth increase by a much larger £2.8 trillion. This increase is double the growth in wealth experienced by the next wealthiest decile (the 9th), 10 times more than the 5th decile, where those with roughly average wealth are likely to be found, and an astonishing 250 times the growth in wealth of the least wealthy decile.
In household terms, a household in the first decile would have seen their wealth increase on average by around £4,000 in the twelve years the survey has been running, a household in the 5th decile would be over £85,000 wealthier in 2018 compared to 2006, a household in the 9th decile over half a million pounds wealthier, and a household in the 10th decile would on average be more than a million pounds wealthier in 2018 compared to 2006. So, whilst all households are, on average, wealthier in 2018 compared to 2006, the actual increases vary enormously. It is perhaps reasonable to not really feel richer as a household if you’re wealth has grown by £4,000 across all savings, pensions, physical goods and any property owned. Meanwhile, average house prices have increased by around £50,000 during this time. Many households experiencing only a small increase in wealth might feel that the prospect of home ownership is even more elusive. Across the population around 40% of private wealth is property, helping to explain the bigger increases in wealth at the top of the distribution.
How can the government ‘level up’?
Given the rise in household wealth, especially amongst the already wealthy, what should a government concerned with ‘levelling up’ do? Firstly, it is important to make existing wealth taxes fairer. There is a range of ways in which the government could consider changing existing taxes. For example, some aspects of capital gains taxes allow those who tend to be wealthy to pay relatively low rates of tax on some parts of their wealth. There is speculation that the government is looking to address the case of the 10% rate due to ‘entrepreneurs relief’. Such changes are relatively easy to implement, can raise revenues and show the government is making the tax system fairer.
But since taxation of wealth is a patchwork of different taxes ranging from council tax to inheritance tax via pensions tax and allowances, it makes sense to review wealth taxes as a whole. Such a review could look at improving certain parts of the system, and ensuring wealth taxes are collectively progressive, raising revenue and encouraging individuals and businesses to act responsibly. A more thorough review might also lead to the examination of options such as a net wealth tax which could provide a better way to tax the wealthiest compared to a mansion tax or similar ad hoc measure.
‘Levelling up’ requires tax and spending policies which are holistic and sustainable. New research shows that economic inequalities do indeed play out across regions and that by some measures the UK is highly unequal. At the same time, most voters in constituencies recently won by the Conservatives in the general election want to see fairer taxation of wealth, for example taxing income from labour and wealth at the same rate. With serious spending ambitions and a desire to tackle economic inequalities, the government should make better use of wealth taxes in the upcoming budget and beyond.
Sign Oxfam’s petition calling for fairer wealth taxes to fight poverty here: https://actions.oxfam.org/great-britain/inequality-wealth-tax/take-action/