As I learnt last night on twitter, Jeremy Corbyn has an appeal that stretches across the political spectrum. He appeals to many on the left as a leader of the Labour Party because so few leaders before him have been ready to speak the truth without fear of the consequences. And he appeals to many Conservatives as a leader of the Labour Party for the very same reason.
Now, if Corbyn is to kick off of the clogs of convention across all areas of policy what will he reveal in mine? Of this there should be little doubt: the black socks of a wealth tax.
Wealth taxes have a powerful appeal to tax reformers on both the right and left. Income taxes place all of the burden on productive strivers and privilege those who hold fallow wealth. They moderate income inequality but leave untouched disparities in wealth. They permit inequalities to ossify over generations. Wealth taxes offer solutions.
The problem with wealth taxes is that they are really difficult to execute. Labour’s election manifesto in 1974 provided
REDISTRIBUTE INCOME AND WEALTH. We shall introduce an annual Wealth Tax on the rich; bring in a new tax on major transfers of personal wealth; heavily tax speculation in property – including a new tax on property companies; and seek to eliminate tax dodging across the whole field.
(I enjoyed that last bit: the same pledge could be found in the 2015 Manifestos of all the major political parties). But as Denis Healey noted in his memoirs
Another lesson was that you should never commit yourself in Opposition to new taxes unless you have a very good idea how they will operate in practice. We had committed ourselves to a Wealth Tax: but in five years I found it impossible to draft one which would yield enough revenue to be worth the administrative cost and political hassle.
But let’s not focus on the problems. To do so would be to misjudge the mood. Today at least. Let me instead focus on the prize: if it is worth having we might then turn then to ask whether the problems are worth tackling.
We are not blessed with high quality wealth data in the UK but this may not matter for present purposes.
Data in the World Wealth Report 2015 produced by Capgemini and RBC suggests there are 550,000 individuals in the UK with wealth of above $1m owning an aggregate of $2 trillion – or about £1.3 trillion. According to the ONS, aggregate net UK household financial wealth in 2010/12 was (coincidentally also) about £1.3 trillion. But this figure excludes non-financial assets such as houses. Update it and include all household wealth and you instead have a figure of £9 trillion.
Which of these – or other – data sets you focus on rather depends on what you are trying to accomplish. But what interests me is how you might raise a meaningful amount of money from wealth taxes – and in a way that is politically palatable or even attractive to the electorate. This looks to me like a cut in income taxes funded by an increase in wealth taxes.
For these purposes, the Capgemini number works as well as any.
If you charged a 2.5% annual charge on aggregate wealth of £1.3tn your theoretical yield is £32.5bn per annum. That’s a little more than what you’d need to fund a top rate of income tax of 30% kicking in at the present higher rate threshold (my calculations from table 2.5 (2015-16) here). A charge of 5% would fund a top rate of income tax of 20% with a surplus of around £5bn – enough to mitigate the effects of many of the Conservatives’ welfare cuts in this term.
How might the electorate like those socks?