by Peter Hanley-Walsh
The old adage that ‘wealth creates wealth’ needs adjusting.
Currently wealth inequality is a significant threat to individual liberty in the United Kingdom – it doubles income inequality. The wealthiest ten per cent of households own 45 per cent of the nation’s wealth, while the least wealthy half of all households own just nine per cent [Institute for Public Policy Research, 2017]. This equates to an average of £1.32m owned by each individual in the top ten per cent and a measly £3,200 owned by the bottom half – over 400 times less. One of the few ways for a non-wealthy person to accumulate wealth is to secure a high paying job – another is entrepreneurship – and one of the main purposes of tax in this country is the redistribution of wealth.
So why do we tax income and entrepreneurship, through corporation tax, instead of taxing wealth? Hard work should be rewarded not punished and individuals should be incentivised to better their financial situations, instead of facing higher taxes for succeeding professionally.
My proposition is that the government scraps income tax, this would provide workers with an additional £181 billion each year [HM Revenue and Customs, 2018]. To compensate, wealth should be taxed at a 95 per cent rate upon the death of an individual due to the distinct advantages it offers its possessor, this is necessary to ensure true equality of opportunity. The U.K. has an estimated £11.1 trillion in private accumulated wealth [Office for National Statistics, 2015], and, with the majority in the hands of older generations [D’Arcy and Gardiner, 2017], a high inheritance tax would compensate for the fall in funding for public services over the next few decades. As well as this, the increased household income would drive the market for private healthcare and education as more individuals look to increase the quality of the services they consume, reducing the demand for public services. This reduced demand would help relieve any potential pressure on the NHS and state-maintained schools, which currently require £242.2 billion to run [Office for National Statistics, 2018; The Institute for Fiscal Studies, Nuffield Foundation, 2018], that could arise from less government funding in the short run. The UK would be allowed to move away from the ‘nanny state’ for the first time in eight decades and low wealth individuals can start to escape indigency.
The wealth tax would also usher out rent-seeking and complacency from the heirs of our country’s wealth as their safety nets are removed upon the death of their parents. Some may accuse this reform of advocating barbaric authoritarianism by “robbing” “rightful heirs” of their “entitlement” to the fruits of their ancestors’ labour, but why are they entitled to such wealth? Parents can ensure their children have a very high standard of living, are provided with an excellent education and are earning extraordinary incomes whilst they are alive – why should they also bequeath millions of pounds to them?
In this system, you would still have a degree of income inequality but it would be majorly reduced with time – due to the opportunities to earn high salaries that are now provided to the traditionally less wealthy. Also, those at the top would now primarily be working for their wealth and would still be able to consign levels of wealth to their children that 95 per cent of people will never see in their lifetimes – for example, £5 million from a fortune of £100 million [Institute for Public Policy Research, 2017].
The universal tax would apply to all UK citizens, no matter how wealthy, and would slowly strip our country of the institutions that reinforce institutionalised classism and wealth inequality. Selective schools would now almost exclusively be filled with the children of parents who worked for their wealth instead of traditionally wealthy families, and still be able to charge the fees that fairly reflect the market value of the education and opportunities they offer. As well as this, fees for independent schools would likely decrease from increased levels of demand and competition from new, cheaper alternatives such as the schools operated by Global Education Management Systems in the Middle East [Verkaik, 2018]. The House of Commons could be filled with ambitious visionaries who run for parliament based on their beliefs and will to benefit the country, instead of career politicians who run for status and exit opportunities.
Over the course of a century, following the introduction of a wealth tax, UK society would drastically change and reforms would enforce a true meritocracy, bleeding out cronyism and plutocracy.
Wealth is the ultimate provider of opportunity, it can buy government policy through party donations, it can purchase a place in parliament through a chain of institutions that churn out our politicians and it guarantees success for its possessors.
Over 70% of top jobs in law and finance, two of the U.K.’s highest paying industries, are given to those who were educated at selective schools, where the majority of children are from wealthy backgrounds [Social Mobility and Child Poverty Commission, 2015].
It is a similar story in Government, whilst it would be untrue to say there is a direct market for the purchase of places in parliament, there is certainly an indirect one. There have been 54 Prime Ministers in the U.K.’s history; 32 were educated at just three public schools, nine went to non-fee-paying schools and just two of them went to non-selective schools [Thompson, 2018]. The fact that our government preaches support for entrepreneurs and hard workers, but then taxes these individuals at incredibly high rates is selfish and demonstrates the clear conflict of interest between their personal lives and their political responsibilities.
MPs earn a salary of £77,379 [Independent Parliamentary Standards Authority, 2018] and are worth far more than the average household – David Cameron’s coalition cabinet in 2010 was worth a combined £60 million and 23 out of 29 members were worth in excess of £1 million individually [Owen, 2010]. There would be far less hostility from the public if this wealth were amassed by the individuals themselves, but the majority is inherited. MPs predominantly come from second or third generational wealth, and pursue politics not to earn a living or benefit the nation, but to achieve status. They become another “notable alumnus” for their public schools to boast to the next generation of the political class, there are currently 20 Old Etonians in the House of Commons [Sutton Trust, 2017].
It is of little surprise that most MPs do not support a wealth tax, given that their children stand to lose so much from such reform. They would rather pay £30,000 in tax each year than forgo a portion of their children’s inheritance because of the significant social advantages that tax-free wealth can provide.
We are in danger of returning to an effective aristocracy, where becoming wealthy is a matter of being born to the correct family and access is restricted based on social status. In the first half of the 20th century, each generation had more wealth than the last [D’Arcy and Gardiner, 2017]. But every generation since the post-war ‘baby boomers’ now has less wealth than the generation before them had at the same age. People born in the 1980s had just a third of the property wealth at age 28 of those born in the 1970s [ibid], showing that our country’s wealth is being accumulated and not redistributed, the only way to tackle this is through tax reform. Failing to address massive inequality is dangerous and risks increasing disillusion amongst those without wealth as they grow up in a rigged game that prevents them from succeeding. History shows that societies functioning in this manner do not last forever and the advantaged class tends to have their wealth appropriated one way or another, better it be through tax reform than through the methods seen in 18th Century France, 20th Century Russia or 2010’s Arab Spring.
Wealth doesn’t just create wealth. It enforces it.