This question was asked by someone called Steve on this blog asly night:
How about a “triple lock” on wealth to help stop it's current explosion at the very top? What would each of the three locks be?
I assured him that I would think about this. What follows might be considered an expanded comment response, but not a full-blown treatment of the issue.
I think a triple lock on excessive wealth is an idea worth developing. The objective would not be to stop people becoming wealthy, but to prevent the concentration of wealth becoming so extreme that it undermines economic fairness, social mobility and democracy itself.
I would suggest three locks, each addressing a different way in which wealth accumulates and perpetuates itself.
The first would be a tax lock.
Income from wealth should never be taxed more favourably than income from work. Currently, the tax system usually rewards those who already own assets more generously than those who earn their living by working.
Capital gains should be taxed at rates equivalent to income tax. Dividends and other investment income should face appropriate national insurance-equivalent charges. There should also be a serious review of the reliefs and exemptions that disproportionately benefit the wealthiest.
The principle is straightforward. A pound received because someone owns wealth should not be taxed less than a pound earned by someone who works.
This would reduce the rate at which the wealthiest accumulate additional financial claims over the resources created by everyone else.
For more details and ideas, see my Taxing Wealth Report.
The second would be an inheritance lock.
The ability to pass enormous fortunes from one generation to another, often with substantial tax advantages, is one of the principal mechanisms by which economic inequality becomes permanent.
I would reform inheritance taxation to ensure that substantial transfers of wealth, whether made during life or on death, were properly recorded and taxed. That would require closing the loopholes associated with trusts, lifetime gifts and preferential reliefs, whilst protecting reasonable transfers between ordinary family members.
The aim would not be to punish people for providing for their children. It would be to prevent the creation of a hereditary economic elite whose advantages have little or nothing to do with their own contribution to society.
No democracy should be comfortable with the idea that economic power can be inherited almost without limit.
Is this possible? Yes, of course it is, but I admit I have not written how to do so yet.
The third would be a power lock.
This lock might be the most important of all.
Wealth does not accumulate simply because people save. It also accumulates because those who already possess substantial assets can use their ownership to extract income from the rest of society.
That happens through the creation of monopoly profits, the charging of excessive rents, harmful financial speculation, control of essential infrastructure, the exploitation of intellectual property rights and the ability to influence government policy, which reinforces all the others and may be the most damaging trait of all.
We need much stronger competition policy, effective regulation of rents and monopolies, tighter controls over speculative financial activity, and public ownership where essential services are natural monopolies.
We also need to prevent concentrated wealth being translated into disproportionate political influence through donations, lobbying and control of the media.
The point is that the ownership of wealth should not provide an unlimited right to extract income from other people's work, or to dictate the rules under which the economy operates.
The three locks would work together.
The tax lock would limit the accumulation of new wealth through preferential tax treatment.
The inheritance lock would prevent existing concentrations of wealth from being perpetuated indefinitely across generations.
The power lock would tackle the economic and political structures that let wealth generate even more wealth, regardless of any corresponding contribution to society.
None of this requires the government to raise taxes because it needs the money to spend. That is not how government finance works.
The purpose would instead be to reduce inequality, limit the concentration of economic power, prevent excessive claims on society's resources, and create conditions where everyone has a fairer opportunity to thrive.
That is why I think a triple lock on wealth could be a powerful idea. It would recognise that excessive concentrations of wealth are not simply an unfortunate consequence of the economic system. They are the result of political choices, and we can make different ones.
When we discuss triple locks in this country, this is one we do need.
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Great idea and development thereof; thank you Steve and Richard. Three mechanisms better covers the need to control inequality, mushrooming wealth and the damage that does.
Thanks
Agreed – and please may we have a well staffed office with enough people to ensure this actually happens?
You are dreaming…
And by dreaming we imagine a better world which turns into solutions.
You know how this goes, of course.
I do.
When you look at the wealthiest people since the industrial revolution, Hearst, van der Bilt, Carnegie, you don’t see inherited wealth being passed down through multiple generations. Back to clogs in three generations is the aphorism.
I can see few names in the rich lists whose great grand-parents were also in it.
You’ve already got the outcome you want.
But here’s what this proposal does do: the decision to spend today or to invest should be tax neutral according to Mirrlees. In the UK we grant a tax deferral to save which should go in my view with no tax charged later in life when you draw down your savings. But your proposal would penalise those people and would advantage people who spend it all as soon as it comes in. I would love everyone to have a few brilliant years in their career where they earn 100 and spend 50 for example and they have the lovely decision what to do with the remainder. This proposal would encourage people to get that difference spent now.
Ah, that phrase “tax neutral”, that denies the right of the government to reorganise society.
Mirrlees was neoliberal to his core; the report gave his name to a disaster.
Please do not waste my time with nonsense of this sort, which the most basic analysis shows to be anything but neutral.
Great post! Some questions for designing this new wealth triple lock, arising from the above… in a NEW system, all questions are valid, its the answers that stir up the division.
What is it “reasonable” for someone to pass to their children (or other beneficiaries)? For example, an average sized home if the recipients do not already have one (not for letting)? A maximum cash amount? A small family run business?
How relevant is the wealth of the recipient? Should an estate passing to a very rich person be taxed the same way as one passing to a pauper? IHT is PAID by the executor based on the size of the estate, but what about the wealth of the heirs (however it might be disguised in trusts and companies and crypto etc)?
What should be the PURPOSE of inheritance tax? One purpose is to prevent wealth accumulation and increasing inequality, but it isnt meant to take back “reasonable” levels of savings, so what is a reasonable exempt amount and how do you codify that?
What is “wealth” and what is a reasonable level of cash and assets to enable someone to feel secure? Can you codify that?
How do we design the system to ALLOW trusts and exemptions that cater for vulnerable people (the care of adults with special needs when their parent carers die) while absolutely destroying the whole tax-dodging industry used by the wealthy to hang onto inherited power. Your comments on power are important.
Thank you.
I like the questions.
I may well return to this issue, but not yet.
Richard
Yes, I do bang on about this BUT
What about something that controls land and property prices?
House Prices were allowed to rise massively by the removal of rent & lending controls, these could be reinstated along with controls on things like ‘second’ and empty homes and who is allowed to own land in the UK
Then there is farm land, again prices far exceed any return that can be made from the land – the ‘historic’ multiple was that farm land should cost about twenty times what it costs to rent for a year. In the past County Agricultural Committees could restrict who could buy farmland and this can still happen in some European nations
Finally of course there have been proposals for Compulsory Sale orders for unused or I suggest ‘badly managed’ land which would mean that owners could not ‘sit on’ sites in the hope that there worth was much greater than it actually was.
We need rent controls. I think CSOs for negligent use are3 also fair. This is not just private property. That is the point.