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Labour should champion a wealth tax

It is worth remembering that the most popular item in Francois Hollande’s manifesto which propelled him to the French presidency was imposing a high rate of tax on the very richest in the country. Admittedly his popularity has nose-dived since then, but that is for totally different reasons to do with France’s economic straitjacket within the Eurozone.

Taxing the small category of excessively rich people still remains popular in France, as it is in the UK. A recent YouGov poll found that 74% in the UK favoured it, with only 10% against, and actually the the rich were slightly more in favour than the poorest groups. Vince Cable on behalf of the LibDems has been pushing the idea of a mansion tax on properties worth more than £2 millions, but Labour has yet to indicate its support either for that or, preferably, a wider tax on the generality of wealth.

The arguments in favour of a UK wealth tax are very strong. First, the richest 10% in the population now own according to the latest official figures £4.5 trillions, which amounts to 44% of total personal wealth. This degree of concentration of wealth in such few hands should be put in perspective. It actually equals three times the total annual income of the entire British population. It is truly astonishing that income is taxed at what is often seen as disincentivising or even punitive rates, particularly on some of those on the lowest incomes, while at the same time such colossal agglomerations of wealth in the hands of a small number of extremely rich people goes entirely untaxed.

Second, in terms of equity, the super-rich not only escape tax on their wealth, they notoriously pay little or no tax on their income as well through a whole range of artificial tax avoidance devices and through very extensive use of tax havens. The latter of course needs to be checked by making it a criminal offence for accountants or lawyers to formulate, and for their rich clients to accept, financial devices the primary purpose of which is to avoid tax rather than for any genuine economic transaction. But the current ability of the extremely rich to avoid due income tax only increases the justification for a robust wealth tax on their assets.

Third, this huge lopsidedness in control of the nation’s assets has severely detrimental impacts on the management of the British economy. It has been estimated that only some 8% of these assets is annually utilised for the purposes of UK productive investment. For comparison the proportion in the case of the most successful south-east Asian economies is as high as 30-40%. Taxing the UK super-rich who use their wealth for their own private selfish interests and using the proceeds to invest in UK priorities like building desperately needed transport and energy infrastrucure, sustainable energy and new technologies would be hugely to Britain’s national interest.

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