I have this morning begun publishing the Taxing Wealth Report 2024:
Brief summary
This note summarises the issues that the Taxing Wealth Report 2024 seeks to tackle.
Doing so, it notes that the research within that report will show that:
- The wealthiest people and highest earners in the UK are considerably undertaxed at present.
- There is ample scope to increase the tax paid by those two groups, whose members largely overlap, without ever having to resort to a wealth tax, as some are proposing but about whose practicality we have concerns.
- There is as a result significant scope for additional tax to be imposed in the UK if the demand for government spending and fiscal policy requires it in coming years.
It suggests that:
- The funding for the Green New Deal that this country requires is readily available.
- A wealth tax is not needed in the UK.
- A comprehensive range of tax reforms can be created in the UK to tackle inequality and support additional government spending needs.
- There is no need for any politician to ever again claim “there is no money left” when that is not the case because a wide range of choices on how to raise required funding is available.
The question that this report tackles
The biggest single unanswered question that those engaged with the climate transition face is perhaps the most difficult one of all, which is “How are you going to pay for it?”
Richard Murphy and Colin Hines, working together as Finance for the Future LLP, have been working to address this question for some time. They created the concept of green quantitative easing in 2010[1]. They have also previously suggested reforms to tax-incentised saving (ISAs and pensions) in the UK to provide funds for this purpose[2]. However, there are some politicians, lobbyists and campaign organisations who want suggestions as to how tax systems might also be used to address this question.
The request is topical. In the summer of 2023 Labour shadow cabinet member Lucy Powell MP claimed[3] “there, just frankly, is no money left.” Soon thereafter, Labour shadow Chancellor of the Exchequer, Rachel Reeves MP, suggested that she was not willing to bring in a wealth tax, or increase the top rate of income tax or increase council tax charges on high value properties to fund Labour spending commitments during the course of the next parliament[4]. The question that both MPs leave unanswered is how additional spending commitments that any government of which they are a member might be met. It is widely anticipated that such spending is inevitable[5]. The question “How are you going to pay for it?” seems to be a lot bigger in significance now.
In response Finance for the Future is publishing a series of new reports that will, when all are available, make up what we are calling the Taxing Wealth Report 2024. The aim of the publications is to show that:
- The wealthiest people and highest earners in the UK are considerably undertaxed at present.
- There is ample scope to increase the tax paid by those two groups, whose members largely overlap, without ever having to resort to a wealth tax, as some are proposing, but about whose practicality we have concerns.
- There is as a result significant scope for additional tax to be imposed in the UK if the demand for government spending and fiscal policy requires it in coming years.
To put it another way, in a country where total wealth exceeds £15 trillion[6] there is ample money left.
The basis of our work
The premise of the Taxing Wealth Report 2024 is that, as the research we have undertaken shows, there is significant capacity to raise additional tax in the UK from those with wealth and those with very high incomes, some or all of which is derived from that wealth.
Our estimates suggest that if the annual increase in the financial well-being of the wealthiest people in the UK was taxed at the same rate as earnings are in this country then an additional £170 billion of tax could be raised each year. This evidence will be in one of the earliest of the notes that will make up the whole report that we will be publishing.
Why a wealth tax is not the answer
In practice there are two very good reasons why tax of this amount will not be collected. Firstly, it is unlikely that the economy will require such a sum to be raised. Secondly, in practice there would be considerable difficulty in raising revenue of anything like that amount.
In particular, we suggest that those difficulties would be most especially encountered if an attempt was made to create a wealth tax in the UK. Whilst such a tax is superficially attractive given the very significant amounts of wealth in the UK and the disparities in its ownership, the reality is that taxing wealth is exceptionally technically difficult and the yield from doing so might be both disappointing and deeply politically contentious. The disputes that such a tax might give rise to, not least with regard to asset valuations, might also incapacitate HM Revenue & Customs and the courts for reasons that we will explain in the Taxing Wealth Report 2024.
The tax reforms we will be proposing
This does not, however mean that the potential for wealth and high incomes to be a new source of tax revenue need be ignored. In the Taxing Wealth Report 2024 we will:
- Explain how we estimate the potential amount of additional tax that might be paid by those with wealth in the UK without their overall tax rate exceeding that of those on lower incomes[7].
- Suggest why the approach that we suggest is theoretically sound.
- Explain why a wealth tax is not the solution to this problem.
- Explore ways in which the existing parts of the UK tax system can be reformed to increase the tax paid by those with significant income and wealth by increasing taxes due on:
- Their incomes.
- Their capital gains.
- Their consumption.
- Their gifts.
- Explain how taxes on companies might be reformed.
- Suggest reforms to VAT.
- Suggest revisions to tax reliefs, rates and allowances that will reduce inequality within the UK tax system and within society more broadly.
- Propose new taxes that might be considered in the future that might reduce some of the inherent injustices within some existing UK taxes.
The aim of these reforms
The aim of these suggested reforms, which will amount to more than twenty in total, will be to:
- Improve the horizontal equity of the UK tax system, meaning that the likelihood that all income of similar amount will be taxed at equivalent rates whatever its source.
- Improve the vertical equity of the UK tax system, meaning that the tax system becomes more progressive than it is now (which would not be hard).
- Reduce the opportunities for tax avoidance within the UK tax system.
- Reduce the number of tax spillovers[8] within the UK tax system, which are the perverse incentives that exist within many of our taxes that undermine the effectiveness of other UK taxes.
- Provide a whole range of suggestions for ways in which additional tax revenues might be raised without harming the well-being of those on lower incomes in the UK who already pay the highest overall rates of tax.
Publication dates
Publication of these proposals is intended to commence in September 2023 with the whole collection becoming available as the autumn of 2023 progresses.
The reports will be published on the Funding the Future blog[9] as they are produced.
The whole collection of reports will be made available together on a new site to which they will be added as they are produced[10].
Hoped for outcomes
It is our hope that the Taxing Wealth Report 2024 will achieve these outcomes:
- It will show that the funding for the Green New Deal that this country requires is readily available.
- It will explain why a wealth tax is not needed in the UK.
- It will lay out the most comprehensive range of tax reforms currently being proposed in the UK to tackle inequality and support additional government spending needs.
- To stop any politician ever again claiming “there is no many left” when that is not the case because a wide range of choices on how to raise required funding is available.
A PDF version of this report is available here.
In due course, all the Taxing Wealth Report 2024 reports will be collected on a new website.
Footnotes
[1] https://www.financeforthefuture.com/GreenQuEasing.pdf
[2] https://www.taxresearch.org.uk/Blog/wp-content/uploads/2021/10/The-QuEST-for-a-Green-New-Deal.pdf
[3] https://twitter.com/ITVNewsPolitics/status/1681227743575277568
[4] https://www.theguardian.com/politics/2023/aug/27/rachel-reeves-rules-out-wealth-tax-if-labour-wins-next-election
[5] https://www.ft.com/content/cdd0ac80-e67b-43b6-aee1-b51c58d1ddbb
[6] https://www.ons.gov.uk/peoplepopulationandcommunity/personalandhouseholdfinances/incomeandwealth/bulletins/totalwealthingreatbritain/april2018tomarch2020
[7] This might sound illogical, but as we will explain in the work we produce, raising the rate of tax paid by the wealthy in the UK to the rate that is paid by those on the lowest levels of income in the country may be very hard to achieve.
[8] Tax spillovers are the consequences of the interactions between different tax systems or different parts of the same tax system that can often (sometimes unintentionally) reduce tax revenues and the size of a tax base.
[9] http://www.taxresearch.org.uk/Blog/
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Great stuff! Let’s hope it makes an impact.
One little thing: “there is no many left”
That’s been corrected now
Thanks
The tax take is at an all time high, so much so it is suffocating.. instead of taxing more why not figure out how to make the country more wealthy and increase tax revenue that way?
Have you not noticed that this has not worked? It’s been tried for 40 years and has failed.
As per usual you ignore the distribution of wealth and the appropriateness of taxation against it.
As per usual you are simply trying to push the bleedin’ obvious away making it everyone else’s problem.
Do us all a favour and go back to sleep.
Your paper talks of raising the tax take to pay for necessary investment but I thought that tax doesn’t pay for spending. Is it that it is necessary, to prevent inflation, to remove from the economy a similar amount to that which has already been spent by government rather than actually funding the spending? (I’m genuinely trying to get my head round all this, not simply picking holes in it.)
I make that point clear as often as I can
But what is certain is that if the economy is near full employment tax to broadly match spending is required
Robin
Maybe this can help………………
Taxes do not have to pay for public services so stick with that.
My view of what Richard is doing is that it is purely pragmatic. It is in response to the current crop of politicians maintaining the line that there is no money to be had hold of to rectify the messes we are in. All Richard seems to be saying is that if these politicians believe that, then the inequities of a tax system favouring the wealthier people provide the answer if they just went and looked.
That’s what this is all about in my view anyway. Richard is offering our society a way out within the rigid intellectual and non-creative mental cage our politicians have encased themselves in. Richard is appealing to our politicians limited mindset.
At the end of the day Robin we know that governments can print money to deal with crises – remember 2008? Then, our government chose to print money. It is still about what politicians choose to do and not do.
Our government could – a new Labour government – could choose to do this to rectify 13 years of Tory abuse and invest (print money) and it seems that it will not. So, Richard has stepped into their world, attempting to show them what they could do by making lots of smaller changes in the existing tax system THEY claim pays for everything.
I think it is also an exercise in dialectics – holding a number of opposing views together in order to find a solution? The art of ruling Robin calls for such an approach because that is where the ‘art’ bit usually is.
So Richard should be applauded for doing what our stupid politicians seem unable to do. I hope this helps.
You are right PSR
I could say taxes aren ‘t heeded
But, politicians think they are
And actually MMT says they are too to counter inflation
So what I am doing is pragmatic and MMT consistent
And of course, you are right to mention the inflation cooling effects of taxation which is one of the most misunderstood issues of our times.
Richard
1. Wonderful that you have taken this on, and I am really looking forward to the complete set of reports!!
2. To Pilgrim Slight Return. I disagree that the government created the money for the Covid crisis. Technically the banks did, and the bonds were bought in QE. Those reserves or settlement balances which bought the bonds stay on the balance sheet of the private banks, and interest is paid on them – which enrages me. If we permitted the BoE digital money to be used by the public, then you would be right PSR.
3. At to the MMT position on taxes not being needed:
a) my number 2 point disputes that because the government at this point is not the issuer of most medium of exchange money, the banks are.
b) if we fix that silly situation, taxes would not be needed, but still be necessary to keep inflation at bay.
In the full employment economy Richard’s economics would give us, the budget would need to be near balance or we would have inflationary forces.
Much of what you write is wrong.
The banks did not create new money when QE was used: that was done by gov’t / BoE
The double entry is explained here https://www.taxresearch.org.uk/Blog/2022/06/21/the-double-entry-behind-the-money-creation-in-the-central-bank-reserve-accounts/
And you are wrong fir the same reason about banks creating most money – if you ignore governmen5 spending they do.
And saying taxes are not needed except to control inflation is absurd. That means tax is needed.
Please do yourself and MMT a favour and stop talking nonsense. MMT does not need that to be relevant but is undermined if people do it.
Richard none of us are in your league or those of your respected colleagues. Anything I say is either from you, or your colleagues or central bank documents. So I have several items that seem at odds with your response and needs clarification for your readers:
1. In Kelton’s Deficit Myth she refers to inflationary pressures several times and the use of taxes to reduce them, “One way to do this is by coordinating higher government spending with higher taxes so that the rest of us are forced to cut back a little to create room for additional government spending. 20 That can help manage inflationary pressures, by balancing the strain on our economy’s real productive capacity. More than any other economic school of thought, MMT emphasizes the importance of deciding when tax increases should accompany new spending and which taxes will be most effective at restraining”
2. The Bank of England says most money is created by the banks:
https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf … Of the two types of broad money, bank deposits make up the vast majority — 97% of the amount currently in circulation.(6) And in the modern economy, those bank deposits are mostly created by commercial banks
themselves.
3. If the BoE created the money that the government uses, why does it pay interest to the banks on the reserves it used to buy the bonds?
Thank you.
1) Noted.
2) They are wrong. 40% of money supply is base money right nowand it is central bank created. Their claim is 15 years out of date.
3) See many blogs on this issue here. There is no need to make such payments.