How to fleece the rich without fleecing the rest of us.

Wealth inequality has increased far faster than income inequality in recent decades, but taxing it is not as easy as it looks.

The cat in the hat

Gary Stephenson was a financial trader at Citibank. He claims to have been the most profitable trader globally in 2011, a claim that has been disputed by former colleagues. However, this multi-millionaire has sought a second life as a populist critic of capitalism on GarysEconomic, where he lambasts the system for creating economic inequality and “moral decay” without, it has to be said, proposing any radical alternative. However, he is a prominent advocate of wealth taxes on people like himself, proposing a 2% tax on wealth over £10 million. The media love him and his beard and beany hat image is everywhere. Left wing Labour MPs have adopted his project for wealth redistribution with renewed enthusiasm. Well, how often do you hear multi-millionaire financiers calling demanding to be taxed more highly?

There is no doubt that wealth inequality has increased significantly more rapidly than income inequality in the past few decades. The top 10% of households hold around 50% of the wealth, in the UK while the bottom 50% own just 9%. Income inequality has remained fairly stable since the 1990s, with the top 10% of earners receiving 30-35% of total income.

So, have the poor been fleeced by the rich? It’s the same old story—except it isn’t, quite. The top 10% have seen their wealth increase essentially due to ownership of private pensions and the inflation in house prices. You enter the top 10% tax bracket if you earn over £60,000, which is a lot lower than most people realise. The wealth figures can be cut in various ways, depending on whether the pensions of relatively low earning public sector workers are monetised and included in the calculations of wealth. Often, they are not.

Also, many people living in expensive houses have very low incomes. The Liberal Democrats used to propose a “mansion tax” until it was realised that many people would have to sell their homes to pay it. It is the same with pensions. Many people who don’t regard themselves as rich, including senior teachers and police officers, are millionaires if you add their pension pots and homes into account. Taxing pensions is a nightmare because they are not accessible until people retire.

However, these top ten percenters aren’t the real bogeymen for people like Gary Stephenson. The top 1% have clearly done a lot better than the top 10% and have seen their wealth increase by a trillion pounds since 2010, largely thought doing nothing but watching their assets increase in value. These are not entrepreneurs, generally, but passive investors who just happened to own a lot of shares, property and land. These assets increased in value after the financial crash essentially because central banks kept interest rates historically low for a long time. It was the greatest windfall in history, and happened at time when wages were stagnant fell for the longest period since the Napoleonic wars

So, how about getting some of that windfall back? Wealth tax is arguably the most important issue in socialist economics right now. But the leadership of the UK Labour Party, like most social democratic parties in Europe, has been remarkably quiet on the issue of wealth taxes recently. Let’s find out why.

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