The last 25 years have been kind to people like Dr Phil White.
The multimillionaire, who retired in 2017 having sold his stake in a technical consultancy business, has benefited from a host of economic tailwinds.
His generation didn’t pay for university. Many got onto the housing ladder with comparative ease. Then, they benefitted from the growth of the housing market, which Office for National Statistics figures show has nearly doubled since 1990. And in the 2010s, as wages flatlined, the value of their pensions and investments surged as global stocks more than doubled.
All of these are facts of which White is aware. But it wasn’t until he sold his stake in his tech consultancy—and paid just 20 per cent capital gains tax versus the much higher rate of income tax—that unease about his accumulated wealth crystallised.
“We were still in the tail end of austerity when I retired in 2017, and things were looking dire,” he says. “It was becoming clearer and clearer that I’d done very well, but there were a lot of people out there who were increasingly struggling… There was a move to create Patriotic Millionaires, and I joined in.”
The organisation to which White refers is a collection of high-net-worth individuals from the worlds finance, start-ups and consultancies, who are concerned about rising inequality and crumbling public services. Their solution? Calling for their wealth to be taxed more aggressively.
What is a wealth tax?
In the UK, there are three main ways in which wealth is taxed.
We have the capital gains tax to which Dr White was subject, levied on any profits obtained through the sale of equities or other assets. There is stamp duty, a progressive tax that is applied when you purchase property over a certain value. And then there is inheritance tax, which is levied on the transition of more than £325,000 down generations after someone has died.
All three of these taxes only apply when someone sells, purchases or receives wealth (ie transactions).
However, when economists and campaigners like Patriotic Millionaires refer to a ‘wealth tax’ they generally mean a one-off or annual tax on an individual’s overall assets, irrespective of what it is held in are or whether it is part of a transaction.
Arguments for wealth taxes and their effect on inequality
Dr Ben Tippet, a wealth inequality lecturer at Greenwich University, feels the introduction of such an annual wealth levy is long overdue. “Wealth in the UK in 2024 is extremely concentrated,” he told City A.M. “Inequality has risen year-on-year for the past forty years or so, and there is now a chronic misallocation of resources in the economy.
“When we compare the richest 200 people on the first Sunday Times Rich List of 1989 to now, the average person on the original list had about 6,000 times the average person in the UK. Today, that number has tripled to 18,000 times.”
Stuart Adam, a senior economist at the Institute for Fiscal Studies (IFS), says there has been one overriding explanation for ballooning wealth since 2010: “The biggest factor is just the fall in long-term interest rates [which between 2010 and 2021 were at historic lows]. This basically bumps up the value of assets relative to incomes, and, as a rule of thumb, the wealthy have more assets.”
Adam’s assertions are supported by research from the Resolution Foundation, which found wealth in the UK (as defined by the total value of assets owned by individuals minus liabilities) has shot up from three to nearly seven times our GDP (the total value of goods and services produced in the UK in a year) since 1980.
In other words, incomes have stayed broadly flat while wealth has ballooned.
This context led White and the Patriotic Millionaires to use this month’s Spring Budget to call for an annual two per cent wealth tax on anyone with more than £10m to their name. The blanket proposal would apply to all wealth, be it stored in a bank, property, equities, or even fine art and supercars.
“The reason for the £10m number is two-fold,” White explains. “If we were to suggest a lower threshold, everyone thinks, ‘it will affect me,’ and it’s much less likely to gain momentum. It also really is extreme wealth that we’re trying to get to.”
The retiree believes that this ostensibly simple and, in his eyes, painless tax would raise approximately £20bn a year; roughly quarter of the government’s budget for education.
Tippet’s proposal goes even further. “I argue for an annual progressive wealth tax in which anyone in the top one per cent to top 0.5 per cent—so with £3.5m to £6m—should be taxed on all those assets at one per cent a year.
“Then, anyone with between £6m and £18m should be taxed at five per cent. And then those with more than £18m should be taxed at 10 per cent.”
While undoubtedly radical, sums generated by such a scheme would be huge. “In the first year, we would make roughly £60-70bn,” he says. “And that would be assuming half the tax revenues were lost to capital flight or avoidance,” by which he means people leaving the country or finding loopholes to avoid the tax.
How practical would a wealth tax be? And would people avoid it?
However, the IFS’s Adam is sceptical of the workability of Tippet and White’s bold policies. “I’m not a fan of the idea of an annual wealth tax, he told City A.M. As a practical matter, they just don’t work very well.
“For one thing, it means the state would have to go around valuing everyone’s assets, and some of the things people own are just really hard to value.”
Adam’s position on feasibility is one shared by Matthew Lesh, Director of Public Policy at the libertarian think tank the Institute of Economic Affairs. “There will be huge administrative difficulties in how you design a tax like that. How much is art worth? How much are vintage cars worth? How much is jewellery worth? You also don’t really know how much a property is worth until you try selling it.”
These practical warnings are bear out internationally. According the Economics Observatory, the number of leading democracies with a yearly tax on wealth, has dropped from 12 in 1990 to only three—Norway, Spain and Switzerland—today.
Indeed, Lesh’s doubts extend beyond practicalities, to whether one is even equitable at all. “Increasing wealth taxes could well foster a sense of unfairness, because it would form a part of double taxation. People are already taxed on the income as they receive it. A wealth tax would mean taxing that money again and again. It’s an attack on people’s ability to save and accumulate.”
In leu of an all-encompassing option, it would be “far better to tax all sources of wealth when they arise [such as income tax or inheritance tax] or tax all uses of wealth when they’re spent or realised [like capital gains]” according to Adam. “The problem with the current system is that the inheritance tax we’ve got and the capital gains tax we’ve got have got bloody great holes in them which means that they can be avoided.”
But in Tippet’s eyes, these arguments fail to outweigh the need to address shift in wealth distribution that has taken place during what he calls the “long decade” of austerity. “The issue isn’t so much that the rich are getting rich. It’s that the rich are getting rich when the public sphere has collapsed… People are asking where the money is, and it’s here, with the wealthy.”
Meanwhile, White believes that, perversely, the wealthy could stand in line to benefit from a wealth tax that targets them. “If you keep cutting government spending, and inequality keeps rising, it reduces people’s power to buy things. And ultimately, it’s the businesses that rich people own that will be affected. They need customers, roads, educated staff. We can’t be extractive about it.”
All of this has left the consultant, who has benefited profoundly from the past quarter century, despondent about the average worker’s prospects for the next 25 years. “I really feel for the generation today, who are struggling from the get-go. The money is there to help—it just needs to get to them.”