Time to Tax Wealth

By Adam Peggs

Wealth taxes may be back on the agenda – with now even the Financial Times suggesting the idea ‘will have to be in the mix’. Calls not to go back to the world we had before the epidemic have thrown up questions about the possibility of introducing wealth taxes, a universal basic income and other bold social and economic reforms. While wealth taxes have been largely out of fashion over the last few decades, remaining in place in only a handful of countries at present, there is a meaningful chance of a resurgence in such levies after the Coronavirus crisis is over – as tax systems are pushed in a more progressive direction after a long period of austerity.   Yet the idea of an annual wealth tax in the United Kingdom has been a realistic prospect on only one occasion in the past, in the mid-1970s. Eventually, the plans were abandoned, with the Labour Party’s enthusiasm for the idea disappearing altogether by the 1990s.

Wealth taxation has been a recurring demand in the Labour Party’s post-war history. Early calls for a wealth tax in Britain owed much to Nicholas Kaldor, the well-known post-Keynesian economist who would later be involved in the Bennite’s Alternative Economic Strategy. As part of the Fabian Society’s Tax Group in the early 1950s, Kaldor was concerned about the imbalance between high rates of tax on top incomes and the lack of tax on wealth. This he argued was leading to many of the wealthy minimising their tax liabilities, whilst potentially disincentivising productive high earners who still faced a high rate of tax. Kaldor saw this partly as a way of shifting more of the burden onto those who could afford to pay but also as a means toward potentially lowering the higher rates of tax on income. This led Kaldor to develop ideas around an expenditure tax and a capital gains tax (later implemented by the 1964-70 Labour government) which he supported. And it led him to develop ideas for a wealth tax – which he was open-minded to. Developing these ideas as part of a Royal Commission initiated by the Conservative government, it is not of much surprise that none of these ideas were adopted. Nonetheless, the work fuelled discussion in the Labour Party and support from both its left and right.

As Shadow Chancellor in 1963, James Callaghan had advocated the implementation of such a tax. Further, in 1964, Labour’s tax working group issued a long paper by Kaldor endorsing an annual wealth tax as an equitable tax reform, though emphasising that the need for a capital gains tax was more pressing. In the run-up to the 1964 election the Conservative Chancellor Reginald Maudling scare-mongered that an incoming Labour government would push up the cost of living by implementing new taxes such as a wealth tax. However, despite going on to introduce capital gains tax and raising taxes on the well-off more broadly, the 1964-70 Labour administrations did not attempt to establish a wealth tax. It is worth situating this among wider disappointment in the Wilson governments lack of reforming zeal in social and economic policy.

Michael Stewart, who had variously held the positions of Foreign Secretary, First Secretary of State and Secretary of State for Economic Affairs in the 1964-70 period, later lamented that a wealth tax had not been implemented not because of ‘feasibility’ but because of lack of sufficient ‘conviction’. Stewart, an active Fabian, had been involved in discussions of the proposal in the society in the early sixties. Stewart was no left-winger, and his endorsement – like James Callaghan’s and Anthony Crosland’s – illustrated the breadth of support for the idea in the party at the time.

Under Wilson, the centrist Chancellor Roy Jenkins remained sceptical of the value of introducing such a tax, not least for some of the administrative barriers that might be raised by such a tax – including accurately valuing the assets of the wealthy. With the government having already adopted new taxes in the form of corporation tax and capital gains tax, Jenkins stressed the burden this would place on the Inland Revenue in his rejection of the idea.

In the runup to the 1970 General Election, Wilson reportedly described the wealth tax and other left-wing policies as ‘Wild Hampstead stuff… already refuted in the 1940s’ in his argument against Labour adopting a more left-wing manifesto. Despite his Bevanite roots, Wilson was happy to dispose of left-wing policies in order to maintain a cautious electoral strategy. As such the party fought the 1970 General Election on an ambiguous platform when it came to tax policy, emphasising a fairer tax system and efforts to curb tax avoidance without giving particularly substantial detail.

Despite being a pledge of the 1974-79 Labour government, the plan for an annual wealth tax was eventually dropped. The policy had been a key part of the party’s agreement with the unions, in which the party would redistribute wealth and increase the social wage in exchange for trade union leaders’ support for wage restraint. The leadership’s adoption of the policy was largely intended as a quid quo pro with a trade union movement hungry for greater levels of redistribution.

I’ve written about the abandonment of plans for a wealth tax by the Labour government in a little more detail here. Crucially, fears of provoking a heavily negative market reaction rather than the administrative problems that might come with a wealth tax motivated the government’s decision to abandon the proposal. As such its abandonment was very much a consequence of the circumstances rather than of infeasibility.

In 1979, the manifesto which the predominantly left-wing NEC had been preparing for three years was rejected by Prime Minister James Callaghan ‘with impunity’, with the leadership employing a ‘blend of cajolery and resignation threats’ to get its way. Despite this the manifesto still contained a commitment to introducing a wealth tax, to be levied on those with a net personal wealth over £150,000 (about £760,000 in today’s terms). The policy was couched in the typical terms of ensuring everybody makes their ‘fair contribution to the country’s finances’. In this form the threshold at which people would start to pay the mooted tax had been trebled from the threshold set out in Labour’s Programme three years earlier, and there was no mention of a top rate of 5% on the top portion of wealth as there had been. While the policy remained, the more full-throated iteration of it had been watered down, while much of the party’s Alternative Economic Strategy had been junked. This may have been, in part, down to the relative breadth of support in both the parliamentary party and the wider movement for the idea. Four years later the idea received little attention in Labour’s so-called ‘longest suicide note in history’, in which it was overshadowed by plans to leave the Common Market, scrap the House of Lords and abandon nuclear weapons.

Labour’s 1987 manifesto proclaimed that if elected the party would introduce a wealth tax ‘only applying to the wealthiest one percent of the population’ which would ‘over the years, bring a significant contribution from those in our society best able to pay’. Unlike opposition to the EEC, to Right to Buy and support for relatively extensive nationalisation, the wealth tax did not find itself axed from the party’s agenda in the mid-1980s. During the election the party was furiously attacked for its tax proposals – and like 2019 accused of planning to borrow far more than it let on – this experience would push the party further in the direction of caution and ‘fiscal responsibility’. By 1992 the proposal was gone, in favour of a more cautious approach on taxing the rich. It was only in the latter part of Kinnock’s leadership, as the party moved toward a proto-New Labourism, that it shifted away from support for wealth taxation.

As Richard Whiting suggests, a net wealth tax would likely fulfill too related goals: equity and equality. Firstly, even from a mainstream social-democratic perspective, it makes no sense that a ‘fundamental aspect of a person’s economic capacity and social power’ should be exempt from taxation. While the goal of reducing inequality would be served by redistributing wealth.

Calls for a wealth tax have been recurrent throughout Labour’s post-war history, yet the idea has only got even relatively close to implementation on one occasion, in spite of being both popular and feasible. As the United Kingdom looks ahead toward the end of quarantine and the possibility of some social and economic reform, the left should ask why that is. In the seventies proposals for an annual wealth tax arguably only got as far as they did because the policy was a quid quo pro with the trade union movement. Beyond this, there is a need to resist attempts to situate demands for wealth taxation in a productivist framework which contrasts the ‘earned’ incomes of those on top incomes with the ‘unearned’ assets of the ‘idle wealthy’.

Last month, the outgoing Shadow Chancellor – arguably the most unwaveringly left-wing in the office’s history – called for the implementation of a wealth tax as his last proposal in the post. The proposal received less attention than it deserved. The principal aim of a wealth tax, of curtailing economic inequality, is one in which its success is almost undisputed. For that reason, it is certainly worth looking at again.