Supporting the wealth tax to fund the Covid-19 recovery

“Without a wealth tax we are only addressing the symptom – income inequality – rather than the cause.” Molly Scott Cato former MEP details her reasons for proposing Greens support a wealth tax, ahead of Spring Conference 2021 from 1-7 March. 

London houses
Molly Scott Cato

To suggest that the Green Party should support a wealth tax is not a controversial proposal. The Green Party has always supported a wealth tax, but this vital contribution to challenging inequality was lost when our taxation policy was revised at Conference in 2019. I think it fell foul of the human tendency to not see what isn’t there: so people passed the policy they were presented with while not realising this vital element was being swept away.

Because our rules say that you cannot bring back a debate until two years have elapsed, we will have the debate about the principle of a wealth tax this autumn. But in the meantime, we cannot be without this essential means of funding the Covid recovery, the more so because we know that the Liberal Democrats and Labour are likely to support a wealth tax.

So the motion to Spring Conference is specifically focused on the need to tax the wealthy to ensure that the recovery from Covid is funded by the rich rather than on the backs of working people. The question of ‘how are we going to pay for it?’ is starting to resound again in the run-up to the Budget. A wealth tax as a way of avoiding the clamour for further austerity to pay back record levels of debt and to ensure that, in contrast to what happened after the financial crisis, the recovery from Covid reduces inequality.

We are a country disfigured by gross inequality in assets. Without a wealth tax we are only addressing the symptom – income inequality – rather than the cause, which is the accumulation and concentration of assets over centuries and within families. The statistics on wealth inequality are disturbing, although rarely discussed. Average (mean) wealth for all wealth deciles increased in real terms between April 2014 to March 2016 and April 2016 to March 2018, with the higher deciles seeing the biggest increases; the average for the poorest decile increased 3 per cent, and the richest wealth decile increased by 11 per cent. Wealth is also distributed very unequally across our country: London, the South East and the South West of England have the highest median household wealth, and also saw the largest growth between April 2014 to March 2016 and April 2016 to March 2018.

In our 2017 manifesto we proposed a Wealth Tax on the top 1 per cent – UK individuals with assets of more than £3 million and we estimated that taxing the assets of the wealthiest at a rate between 1 per cent and 2 per cent would raise approximately £21 billion to £43 billion a year. This motion leaves the details open but establishes a clear principle that such a tax on wealth is central to our understanding of the need for justice.

A wealth tax would not target pension investments but would focus on property and financial wealth. Land itself would be caught by our Land Value Tax but here we run into the issue of taxing income vs taxing assets. The purpose of a wealth tax is to redistribute assets to go to the heart of inequality, which is inherited wealth. It can be assumed that these ONS figures do not cover wealth hidden in offshore trusts but we would have to address that indirectly, with the first stage being greater transparency and especially a beneficial ownership register.

The idea of a wealth tax is gaining support across the world. In the USA primaries, Elizabeth Warren proposed an ‘ultra-millionaire tax’: calls for a 2 per cent annual tax on households with a net worth between $50 million and $1 billion and a 3 per cent annual tax on households with a net worth over $1 billion. Elizabeth Warren has said that the wealth tax could generate $2.75 trillion in revenue in a decade. This is a conservative proposal compared to European examples.

France has a long history of taxing wealth with a ‘solidarity tax on wealth’ on those with assets in excess of €1,300,000 (since 2011) introduced by the socialist government in 1981. It was abolished in 1986 by Chirac’s right-wing government, reintroduced by Mitterrand and then abolished again by Macron in September 2017. The rate ranged up to 1.8 per cent and it brought in 1.5 per cent of France’s total tax revenue. In his book Inequality, French economist Thomas Piketty calls for a graduated wealth tax of 5 per cent on those worth €2 million or more and up to 90 per cent on those worth more than €2 billion.

So what shall we do about the wealthy who do not want to contribute their fair share and threaten to leave the country if we introduce a wealth tax? To prevent the flight of the parasites the motion also includes support for capital controls. Such controls would use the power of the national government to prevent the rich from draining a country of their wealth when required to share it fairly. Such a proposal is not considered very radical amongst groups like NEF, the Green New Deal group, etc, although none of them have yet offered a detailed proposal.

At a minimum, capital controls might mean an extension of the DAC (Directive on Administrative Cooperation) legislation from the EU that requires detailed reporting of capital flows. We do not allow people to travel without passports, so why do we allow capital to move without checking whether it is legitimate?

But we should certainly also consider limiting the amount of money that British citizens could take out of the country, which was standard practice until the Exchange Control Act was abolished by the Thatcher government in 1979 (see the photo of my granny’s passport to show how citizens had to use their passport to take currency out of the country). This allowed the capitalists to operate freely, create massive inequality globally and within countries, and create stability in the global financial system. Whatever they donated to the Tories, they certainly got their money’s worth.

A history of UK exchange controls from 1966 can be found here. Clearly, the nature of controls would be different to reflect the digital flow of cash in today’s global economy and the DACs do set a framework for making this possible. The FT is clear that emerging markets will need the protection of controlling flows of capital into and out of their economies, and I see no reason why we should not have it too.

We should be clear that we choose to tax the rich not only because we need to raise revenue for the Covid recovery but also because, as Greens, we believe that the gross inequality that disfigures our society is tearing up the social contract and undermining our democracy. A wealth tax is the first step to restoring and rebuilding our society.