The Financial Times published an editorial yesterday which revealed more about the priorities of the economic establishment than it probably intended.
The FT editorial team was worrying, at considerable length, about the fact that Keir Starmer has not ruled out a wealth tax. Its suggestion was that merely keeping that option open is enough to frighten rich foreigners from Britain's shores, supposedly taking with them jobs, investment, and tax revenues, because these people are, apparently, 'wealth creators', when there is absolutely no evidence to support that claim.
The wealthy are, by definition, profoundly good hoarders, but the evidence that they actually create wealth is weak, at best. The whole premise of the FT argument is, then, based on this fundamental error that they make. I suspect, however, that they made it quite deliberately, since their readers and advertisers are determined that this myth be maintained.
That mistake having been noted, the rest of the editorial also needs to be considered.
First, the FT made clear that in its opinion, the entire argument about tax policy is now held hostage by the threat that the wealthy might leave. The FT notes that some 70,000 people have registered interest in Donald Trump's proposed “gold card” US visa, although there are now doubts about whether that scheme will progress. They also noted that Italy's flat tax on foreign income is luring the rich and that the UAE offers zero income tax. The implicit message from the FT was obvious: they think that the UK either competes in this race to the bottom, or we are in trouble, even though the consequence of winning is reduced tax revenue, whatever happens. Taking part makes no sense in that case.
Second, by making this argument, the FT implicitly, but most certainly not explicitly, acknowledges that they understand that those wealthy people that we have in the UK are not here for our schools, our hospitals, or our communities. They are here for the tax breaks, and that is it. How that can be equated to being a wealth creator or to contributing to the UK is hard to work out, but the FT makes that leap, nonetheless.
Third, there is something deeply uncomfortable in the suggestion that the FT implicitly makes that without the transient wealthy population, the British economy would somehow grind to a halt. The FT produced all the usual arguments, that they create jobs, bring investment, and pay taxes. But the truth is that most jobs in the UK are created by small and medium enterprises that thrive on local demand created by people with ordinary incomes, or via public spending. As for taxes, our existing system is so riddled with advantages for the wealthy that the wealthy pay proportionately less than most people on ordinary incomes when all sources of increase in financial well-being are taken into account, as I showed in the Taxing Wealth Report. That is the real scandal.
The editorial then recycled the argument that wealth taxes have failed elsewhere, before grudgingly admitting what both I and the Institute for Fiscal Studies have long made clear, which is that the UK does not need a wealth tax if it simply taxes the sources of wealth properly. We under-tax capital gains. We under-tax dividends and other investment income. We give absurd breaks on inheritance, pensions and other activities that only the wealthy undertake. And we still let wealth accumulate in offshore structures that pay nothing at all. Fix those, and we do not need a wealth tax. We would simply have a fair tax system.
So, where does this leave us? I think that there are three important conclusions.
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We must stop treating threats by the wealthy to leave as vetoes on democratic policy. Any group that only remains in our country under the promise of minimal tax responsibility is not a foundation for a stable, equitable society.
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We should ignore fear-mongering over international mobility and instead build a tax system that is robust, progressive, and closes the existing loopholes. Proper capital gains taxes, fair inheritance taxes, reform to other tax rates, and proper taxes on investment income, plus an end to non-dom type carve-outs, would all achieve a great deal more than a poorly designed wealth tax.
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Above all, we (and the FT, in particular) need to rediscover the principle that tax is not a punishment, but the price we all pay for a civilised society. If the ultra-rich are unwilling to pay that price, then we should let them go. Their departure will not destroy Britain, but their presence, under special privilege, corrodes our democracy.
If Labour is serious about rebuilding the UK after years of austerity and stagnant growth, it must stop flinching at the first sign of rich people's disapproval. It needs to tax wealth properly if we are to build prosperity in the UK. No politician has any other option available to them. That is the only sane way to support the public services and investments on which long-term prosperity depends.
And if the Financial Times objects, perhaps that is simply because it knows who its real audience is, and it's not the majority of people in Britain who have to live with the consequences of chronic underinvestment and inequality.
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This is the typical rhetoric espoused by the right wing press including the Telegraph. They rarely mention the culture, rule of law, lifestyle, schools, universities that may make the wealthy want to stay. If they want to leave let them go, the UK would be more equitable if they did. Paying taxes should be a moral obligation and the rich should see themselves fortunate to be in that position in the first place. Also, let’s introduce an exit tax so that they leave some of their wealth that was earned by those who work for them.
I worked hard for such a tax from 2008 to 2010 in the Treasury, representing the TUC at the time.
Since the rich are rich because they seek to make money out of investing money they conflate any attempt to tax their personal income from that investing as an attack on their investing activity. The question therefore becomes how does a society break that linkage?
One answer is to move to a situation where the inhabitants of a country have a greater say in that investing. Those inhabitants are less likely to want to up sticks and move to another country because taxation becomes more equitable on income.
Another answer is to ensure that a Minimum Wage is adequate so that a government has to generate less money to provide welfare top-up benefits which in turn means less need for taxation to control inflationary pressures.
Yet another one is to recognise that trade wars are often class wars whereby elites suppress the income return to a country’s workers as well as allowing their currency to float naturally in order to maintain price point in global exports. Klein and Pettit have written a book on this:-
” Trade Wars Are Class Wars: How Rising Inequality Distorts the Global Economy and Threatens International Peace.”
As the promotional blurb says “A provocative look at how today’s trade conflicts are caused by governments promoting the interests of elites at the expense of workers.”
Breaking down the dogmas attached to trickle down from the rich and that the rich pay too much tax is always worthwhile (the latter is always portrayed as our problem, which for those of us on lower incomes it is, but it is the rich that superimpose their fear of it the most I think – the way this works is very clever – or should I say, rather evil).
Another thing the FT ignores is that unequal societies are much more unstable societies, riven by conflict of all kinds. When a society is at each other’s throat, it is fundamentally very weak indeed. Divide and conquer might make sense to some, but if it sustained for too long as I suspect it has been, then the rot well and truly sets in. To the point perhaps of no return………………………
Agreed
“that they create jobs”
would that be the 10,000 butlers and assorted fore-lock tuggers and hired serfs?
🙂
Why is it that the path of the unrighteous is strewn with success and all the perfidious prosper?
Vasili Mitrokhin
I would question the FT’s basic assumption. The Tax Justice Network did a report on the actual number of millionaires leaving the UK in 2024 after a similar scare story. The exodus didnt occur. Link here:
https://taxjustice.net/press/millionaire-exodus-did-not-occur-study-reveals/
I haven’t read the FT article, but I have read Dan Niedle’s arguments against Wealth taxes, and they are that the evidence is that they don’t raise any money.
Point 1 When Jim Radcliffe changed his citizenship from UK to Monaco, I don’t suppose he spent any less time in the UK or anymore time in Monaco, there is an upper limit to the number of days non residents can spend here, but people like that don’t have much issue keeping below that. Also he would not have changed his investment portfolio just where he paid his taxes.
Point 2 the UK already has a wealth tax, Inheritance Tax, above a threshold, 40% of everything you own goes straight to the taxman, this a very unpopular tax and it raises in total 0.7% of tax revenue.
You make some errors.
I can assure you the time spent here by the wealthy is very closely monitored. The rules go down to hours, and are checked. But re the portfolio, it probably did not change.
And the UK has not got a wealth tax. It has a very inadequate inheritance tax. Please do not conflate the two: that is just wrong.
Surely Phineas makes another error? Changing your ‘citizenship’ does not change your tax liabilty, which depends on your residence (carefully monitored as you say).
Agreed
I doubt that was involved in this case.
Millions of ordinary people have effectively been pushed out of their own communities by the effects of concentrated wealth. Teachers, nurses, care workers, young families, all priced out, pushed aside, worn down by a system that serves capital and not citizens.
That’s the exodus that really matters.
It is blindingly obvious that the super wealthy are usually involved in criminal activities and use well paid lawyers to cover their tracks. The solution is simple. Lock them up, as DT would say.
That is simply not true. They do not need to do that. I reject the accusation. Some may, but the majority do not need to take that risk. The accusation shows a lack of understanding. Sorry, but that’s the case, most especially in the current tax haven environment.
Dale Vince had a good dig at the tired old argument peddled by the likes of the FT in his latest Zerocarbonistra podcast. He has previously had some blunt forthright comments for those “unpatriotic” millionaires that threaten to leave the UK. Likewise I say “good riddance” to the lot of them. In reality they contribute very little of worth to the life of the country. They are little short of parasites.
It seems highly implausible that merely being rich means someone creates wealth. Quite the reverse. Since they hoard money that money is not circulating in the economy, thereby reducing growth.
Of course, some wealthy people do employ others and create and, occasionally, run businesses. But the question is do they do this to a greater extent that an average person would with the same wealth? I doubt it. Unless wealthy people do intrinsically create more wealth than the average Joe with the same wealth they are not worth keeping.
Then, some say, if they leave they will take their wealth with them. No they won’t. They can’t. As discussed here previously, if they sell an asset, property, shares etc, denominated in sterling, someone else must buy it. Likewise if they take money from a sterling bank or savings account, someone must buy their sterling. The net effect is that wealth does not leave the country when a wealthy person leaves. Likewise, there is little benefit from encouraging immigration of the wealthy. They don’t increase net wealth in the country.
All of which is mostly irrelevant. Rich
people are not exiting UK. According to the Tax Justice Network (founded by Richard) & Patriotic Millionaires (https://taxjustice.net/press/millionaire-exodus-did-not-occur-study-reveals/), there are 3 million millionaires in the UK, 10000 are reported to have left in the past year. That’s 0.3%. Their leaving is going to take a long time to have any effect.
Much to agree with