Paying off the deficit - is there another option to cutting or borrowing? Time for a wealth tax!

The debate on reducing the deficit circles stubbornly around two options:

Option1:           Cutting spending

Option2:           Continuing spending with borrowed money

Neither the previous Labour nor the current Conservative led government wanted to waste a good crisis: both eagerly took the opportunity to reduce the circumstances of us ripped-off Britons by cutting salaries, pensions, benefits, and laying people off. Proposals have been made to water down the minimum wage and allow employers to dismiss staff without a reason. Borrow more, or cut benefits and sack the less well off. The repeated lie that "we are all in this together". Both political parties chose to ignore the third option staring us in the face. The third way may not be a pretty option, but in this crisis none of them are. The third way, whisper it softly, a well targeted tax aimed at the best kept open secret tax haven.

Tax avoidance has taken many of its tactics from the natural world, including running and hiding, with the British government licensing many of the hidey-holes in Britain and in British overseas territories around the world for anyone who can afford the fees.

Another effective method used by plants and animals is disguise. By disguising themselves as another dangerous creature, harmless tasty bite-size morsels can successfully avoid their predators. As an example, the otherwise succulent spicebush swallowtail caterpillar scares off predators by mimicking a snake. (Picture from wikimedia by Michael Hodge). Financial services are masters at this tactic, claiming to tax or regulate them more would make the whole economy feel distinctly unwell and fall over. Government ministers of all shades, perhaps looking forward to topping up their retirement incomes with the occasional £25k fee making speeches at professional dinners, find this argument highly compelling.

Intriguingly, however, it is the opposite tactic not much used in nature that has proved the single most successful tax avoidance ruse in the UK. Little beasts sitting in plain site with a “Here I am! Defenceless and Delicious!” sign was presumably a ruse extinguished early on in the evolutionary race. The practitioners were rapidly snapped up and digested.  And yet, as a tax avoidance tactic it has been a thundering success. Highly visible displays of wealth - property, jewellery and other valuables - elicit not a nibble from the hungry taxman. A tactic like this can only work for those creatures who sit at the top of the food chain. 

The wealth that comes to us in the form of salaries, interest on bank savings, and the few other sources of income most people have are quickly and pitilessly taxed.

In the UK, the predatory taxmen have been instructed by their political handlers from successive governments not to take a bite out of another source of our more privileged brethren’s growing wealth: “Unrealised capital gains”.

Unrealised capital gains mount up in a chap’s possessions. The capital gain is the difference between what was originally paid for it, and its current value. It comes in the changing value of the property and share portfolios, the collections of furniture, art, jewellery and other such movable and immovable property, and a well funded pension. 



So long as a fellow has no need to sell those possessions, and 'realise' the capital gain as a profit, he can keep the increase in his wealth untaxed. That’s the kind of lucre owned by the richest among us. People who tend to be the key donors and supporters of those who set tax and fiscal policy and who have supper with senior HMRC executives.

According to the ONS Wealth & Assets Survey published at the end of 2009, the assets of the wealthiest 20% approached £5.6 trillion. That's about three times the UK's Gross Domestic Product (GDP). Wealth built up, perhaps over generations, by the investment of surplus income. Perhaps hard earned, and often well deserved. 

For Britain is the most unequal society in terms of income among the large European countries.  The fortunes of many of the wealthiest burgeoned during the boom years before the credit crisis.

Growing inequality is a trick pulled off by those who hold the economic soup-spoon serving themselves generously (bankers and directors must be paid loads, otherwise they wouldn't work so hard), claiming that other workers don't really want more generous servings (teachers and nurses don't want to be paid more, they are following their calling), and the rest don't deserve any (hunger and cold is the best way to help the disabled and unemployed back into work). And the claim that the wealthiest pay the lion's share of income tax is as fatuous as a rustler who has stolen his neighbours cows expecting the neighbours to be grateful for providing them with milk.

In real terms, the wealth concentrated in the pockets of the wealthy has grown healthily. Even the 2008 dip in asset prices leaves asset prices well above historical levels in real terms. In France they already have a separate wealth tax they call  "L'impôt de solidarité sur la fortune", the solidarity tax by which the wealthy show their solidarity with everyone else. 


Income tax in the UK is a temporary tax, which expires and has to be voted back into law every year as a provision in the Finance Bill. It has been renewed every year since 1842. Similar provision can be made for a wealth tax, which would be imposed in times it is needed.

Would it mean some of the wealthiest having to sell off a carefully kept asset to pay their taxes? Perhaps be reduced to eating their cakes from crockery purchased from John Lewis instead of that inherited seventeenth century china tea set? Probably. But is that not a better option than adding to the estimated 2,700 who will die this winter because they can’t afford to switch on the heating as their benefits are cut? Is taking 1% from the unrealised capital gains of a wealthy person who can keep the other 99% not a better option than sacking someone leaving them with an 80% cut in income, facing unpaid bills, bailiffs, and eviction? Wouldn't it be better to have money to pay for some aircraft on our aircraft carrier, immigration officials at our airports, nurses in our hospitals, and police on our streets?


Do this, and the lie that "we are all in this together" would become just a little bit less of a lie.