The wealthy say they are terrified of the national debt, but they aren't really. It only exists because they don't pay enough tax, and they'd hate that even more.
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This is the transcript:
The wealthy love the national debt in the UK.
There is nothing that suits their purpose better than having the UK government in debt to them, and that's why they love the national debt.
Let's be clear what the national debt is. This supposed debt is simply the total amount of money that the government has spent into the UK economy that it has yet to reclaim by way of tax.
The national debt is created by government spending. There is no other way that it can come into existence. The government spends, and it doesn't tax back enough. It creates a deficit in a year, and that adds to the national debt.
And ever since 1694, when the UK national debt began, in most years, there's been a deficit. And in most years, therefore, the national debt has gone up, because in most years, the government hasn't taxed enough.
So, who is the greatest beneficiary of the government not taxing enough? The answer is very simple, and it's very straightforward. It's the wealthy.
Just have a look at this chart that I prepared for the Taxing Wealth Report.
The chart shows the effective tax rate paid on income and wealth depending upon which group in society a person falls into, and I divided taxpayers into 10 groups of equal size to create this chart, so the bottom 10% of earners are in the lowest group, which is on the left hand side of the chart, and those on the right hand side of the chart are the highest group of earners. And as you'll see from the orange line on the chart, the tax rate paid on income drops heavily once you cease to be in the bottom group in society. It's then flat for a bit, and then sort of creeps up towards the end so that it looks as though we have a slightly progressive tax system.
On the other hand, when we combine that data on the tax rate on income with the tax rate paid on wealth, we get the blue line, and what you'll see there is that actually over every single income range, almost with that exception, the rate of tax falls as your income rises. And that's because capital gains, and inheritances, and other forms of income derived from wealth in the UK are heavily undertaxed, rarely, in net terms, paying more than about 4% per year. And who owns most of the wealth in the UK and who therefore gets most of the advantage from this under taxation? Well, that's the wealthy.
And that's the point that this chart is drawing out into the open. We shouldn't be taken in by the idea that the wealthy are paying a bit more tax on income than everybody else because, overall, they're paying a lot less tax on their overall net increase in financial well-being each year than almost everybody else in society is. So, as a consequence, as their wealth goes up, their effective tax rate actually goes down.
And that's why they love the national debt, because they, by and large, own most of the national debt. They do so either via the companies that they have stakes in as shareholders, or they do so through the pension funds which they own, because most pension fund money in the UK is owned by wealthy people. And the consequence is that as the national debt goes up, because not enough tax is being charged, and most of that tax not charged will have not been paid by wealthy people, they're actually compensated for the fact they're not paying enough tax by being paid interest on the amount of money they then save with the government.
We end up with this quite absurd situation that by not charging the wealthy enough in tax, the government then has to pay them for the fact that they haven't been charged enough in tax.
It's just absurd. Why are we compensating the wealthy for not charging them tax? And I just want to make that point very strongly when you hear the wealthy talking about the fact that the national debt is a threat to us all, and our grandchildren will have to repay it - all of which, by the way, is complete and utter nonsense - what they actually don't mention is the fact that they're very pleased with that situation because the fact that the national debt exists is only because we haven't charged the wealthy enough tax with regard to the income and gains that they've made in our society, which have made them so much wealthier than everybody else.
If only we charged more tax on wealth, we would pay a lot less in interest on the national debt, and everybody will be a lot better off.
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Isn’t the National Debt equivalent to the private wealth of the country, which is held mainly by the wealthy?
It is not all of the private wealth of the country, which is much higher, but it is certainly mainly held by the wealthy.
Thanks for this. So, a mere five years after The Glorious Revolution the groundwork is laid by a Protestant monarch for the financial powerhouse of a City of London that funded colonial Empire and that created through blood and exploitation the geographical map for modern neo liberal globalisation. Both reinforcing, albeit presently invisibly, a rigid cultural class conflict. Here in Northern Ireland I would argue that conventional ‘nice’ British Unionism still lives and breathes in this original rigid ‘know your place’ class hierarchy . Most hardcore Loyalist manors worldview is far more rooted in 1641, in a perpetual rebellion against perceived Droit de Seigneur overlords with painted gable ends of Cromwell, never the Queen/King. Both can still prove politically useful to the ruling class as easily manipulated, by dint of their cultural conservatism, attack dogs. Eg Brexit. I will be very interested in whether any individual who is a benificiary of this iniquitous system of social repression for the many and state protected great wealth for the few comes on here to offer an ideological defense.
Thank you, Sara.
I went to school with some big house unionists. The big house became a school after the owners, who also had estates in what became the south and Jamaica, had to sell everything in 1921. This sparked an interest in Northern Ireland, which I pursued when doing a masters.
I get the impression that some of these unionists are increasingly reconciled with, if not resigned to, unity. Their farming interests stand to benefit.
I hope this is relevant.
There is a form of debt to be paid by our grandchildren. I live about 10 miles from Hinkley Point. The reactor is late and costing several times its estimate, the cost of electricity provided will be expensive and the future de-commissioning costs huge. The profits will go to EDF shareholders and their bankers.
Today we are told that Sizewell C will be built. Only £40 billion. The claim is that lessons learnt from Hinkley will reduce the cost. Perhaps.
Yesterday I read BBC ‘in depth’ why energy companies are paid huge sums not to produce electricity.
One paragraph stood out
“even a very small change in interest rates could have dramatic effects on how much renewable infrastructure is built and how much the power from it costs.”
Given the absolute necessity of reducing carbon emission, I wonder why the state cannot create the money required to fund the most effective system and reclaim the cost over the years. I am sure you have addressed this issue many times.
I need to revisit this.
Listening to Ed Miliband this morning trying to justify the enormous expense, (currently £40 billion, but probably three times that amount if compared to Hinkley overspend) I waited in vain for the question: “If, instead of investing in out of date, dangerous, and unpopular technology, we spent £40 billion on renewable energy and related green activity, what could we achieve?”
I think Miliband could probably answer that question, but like most Labour MPs, he has been reprogrammed as a government speak-your-policy machine.
Agreed
Imagine if the £40bn for Sizewell C was spent on renewable energy.
You could give every household (about 25 million) in the country £1500, enough money to buy a wind turbine, solar panel and storage battery. Blocks of flats and streets could share resources. No nuclear waste, and no decommissioning costs.
The only downside is that people would have to endure free electrical power.
Mr Stevenson: this is what I would do.
1. Hold CfD auctions with the requirement that the bidders disclose their costs of funding (does not have to be public) and the split of debt/equity (often 80/20)
2. Ask them to provide a table showing different interest rates & the impact on the levelised cost of electricity (including interest rates below market).
Select the winning ones on the above basis – with a gov option to fund those with below market rates – comboed with a gov equity holding in said project (= condition for getting low interest loan).
This gives the gov an asset (via equity) it delivers elec @ a low cost (= citizens happy provided elec’ market reform), the companies are happy (cos they get ownership of part of an asset cheaper), gov’ not involved in the messy bit of EPC (engineering procurment construction), but benefiting from private company expertise in this area.
Nice thing is, the companies in the CfD would tear each others throats out to win (=competition) so for a given auction – you would be fairly sure to be looking at real LCOEs (albeit with a range due to diff interest rates). One would probably hear complaints from the merchant banks (cut out of the debt market).
Cutting out the merchant banks would be a massive benefit
EDF, the french company who are building the new nuclear power plant at Sizewell C, are boasting that almost all the contracts for the nuclear engineering and equipment required will be awarded to french companies. Apparently Ed Milliband prepared an initial statement saying we would be getting “nuclear power built by unionised British workers”, the final draft said the project would be “creating thousands of skilled jobs”. That is according to Private Eye today.
This is a compelling and much-needed analysis of how the UK’s tax and debt systems quietly reward those who already hold wealth. Your explanation of the national debt as the cumulative result of government spending not yet reclaimed by taxation is a powerful reframing, and it clearly exposes the way public narratives about “burdening future generations” often serve to protect existing concentrations of wealth.
Your point about the under-taxation of capital gains, inheritances, and other forms of unearned income is particularly important. The effective tax rate falling as income rises—especially when wealth is included—should be at the centre of public discussion, yet rarely is. The chart you reference speaks volumes, and highlights how far the UK has drifted from a genuinely progressive system.
It might be helpful to build on your argument by adding more concrete examples of how wealth taxation could work in practice. For example, what level of tax on capital gains or inheritances would begin to rebalance the system? Could reforms to pension fund tax relief or bond interest payments be part of the picture? These kinds of suggestions might help readers imagine a pathway from diagnosis to solution.
It’s also striking how interest payments on government debt effectively become an income stream for the very people who benefit most from under-taxation in the first place. Framing this as a form of compensation—paying the wealthy for not taxing them enough—is a brilliant insight, and deserves wider attention.
Thank you for articulating this so clearly. We need far more public conversation that asks who the system is really designed to serve—and whether it’s time to rewrite the rules.
Thanks
Fair point on the cause of the diff’. As for the payment of interest (I guess this covers gilts) – previous blogs have noted that the likes of pension funds like gilts – gov’ lender of last resort etc. That said, if tax = non-capex gov spending then gilts could be used for capex?
As for the wealthy being pleased with the situation – perhaps some are aware of it (cue rubbing of hands with glee), but I’d hazard a guess that many still think in terms of the national economy as a corner shop – debt = bad. I agree with the main thrust. Begs the question: what to do with respect to the future? (& I recall other blogs coming out against a wealth tax on the basis of too complicated).
I am going to be doing more to answer that question, very soon.
An interesting question from Prem Sikka in the Lords yesterday.
https://www.theyworkforyou.com/lords/?id=2025-06-09a.1070.1&s=speaker%3A25956#g1073.2
Government response – we will look into it.
Does that mean they hadn’t realised, or sorry we were found out?
Shouldn’t they say thank you to Prem for finding another £4 billion a year?
If I am honest, the question does not make a lot of sense. I will differ with Prem in this case. The test is not on partners derivimng income from a single partnership; it is on the income of the partnership. I think there is some confusion apparent here.
Does that blue line on your graph represent tax on actual income deriving from wealth (e.g. rent, interest, share dividends, realised capital gains)? If so the low tax rates paid by the higher wealth deciles is truly shocking and you are right to publicise it.
However I worry it is an estimate of (untaxed) paper increases in wealth, which are hard to equate with genuine income. There have been several periods during my lifetime when for people with very ordinary incomes buying a home with a mortgage, the paper value of their equity has had annual increases exceeding their income from employment. It would not be realistic to suggest people are charged tax on that paper increase.
It is the total rate on all sources.
And, it is wholly realistic to tax inflated values. How else do we tackle the inequality that creates?
I agree that increases in the value of wealth should be taxed – but when it is realised. So in the case of homes, when they are sold after the death of the owner (or when capital gains realised by downsizing). Unfortunately the current IHT allowances – effectively £500,000 in most cases, and deferrable to the second death in couples – is too high and I fear it would be politically impractical to reduce those.
Assuming your blue line incorporates IHT the £1M threshold for couples owning homes may be what results in it pointing downwards, and gives your figure for taxation on capital gains of just 4%. But even then I would expect it to start turning upwards somewhere around the eighth decile beyond which estates are likely to exceed £1M.
You will note I poroposed a tax on houses on death of the secnd partner in the Taxing Wealth Report.
But if you look at the methodology for this chart you will see I am simply looking at overall tax rates. See https://www.taxresearch.org.uk/Blog/wp-content/uploads/2023/09/Wealth-tax-background-report-published.pdf