Conference Preview: The Wealth Tax
Continuing our series on the upcoming Scottish Labour conference, Nathaniel Blondel takes a closer look at Richard Leonard’s proposals to levy a wealth tax.
Wealth inequality is severe in Scotland. The richest one percent own more than the bottom fifty percent combined. But until recently, the conversation around tax has been dominated by income tax - to restore or not restore the 50p rate, a new band here, a lower rate there. The inexorable march towards greater wealth inequality was put centre stage in 2013 by Thomas Pikkety in his seminal book Capital in the Twenty-first Century, where he demonstrated the way wealth has been concentrated in fewer and fewer hands over time - something he called 'the fundamental force for divergence'. That should have been a wake up call, but in many ways the political world wasn’t ready. Now, Richard Leonard has brought the issue back into the limelight.
The Scottish Labour leader has called for ‘once-in-a-generation discussion about taxation in Scotland.’ At present, total taxes on capital wealth in the UK account for only 3.9% of tax revenue - or less than 1% of private asset holdings. With rampant austerity and falling wages, better funding for public services is clearly at the forefront of Leonard’s mind. But revenue isn’t the only concern - wealth inequality has a hugely destabilising effect on the economy. When the spoils of growth aren’t shared equally, the ups and downs of the normal business cycle can be even more catastrophic, and private capital, as the only source of investment, becomes too-big-to-fail. That line of thinking leads to bailouts for banks, and austerity for everyone else. The question of the wealth tax isn’t just about replenishing the public coffers; it’s about economic justice.
Stewart Lansley, an economist and financial journalist who will be speaking at the conference in support of the wealth tax proposals, sees it as an opportunity to completely reshape the Scottish and British economies. The direct taxation of wealth could be used to create a sovereign wealth fund - similar to the Norwegian social wealth fund, which has grown from nothing to $1 trillion in 20 years. According to Lansley - “by each owning an equal part of the economy, all citizens would hold a direct stake in economic success, with the fund automatically capturing a growing part of the gains from economic activity. Such a fund would raise the level of public capital, and the potential income streams that it offers, bringing a powerful balance to private capital.”
In a country where productivity has been stagnant, and manufacturing on the retreat, an alternative source of investment is clearly needed. But the fund could also have other ramifications: “Such funds have the potential to become a powerful pro-equality tool. By locking in part of the gains from economic success for all, they create a ‘fundamental force for convergence’, one which helps break the built-in inequality bias of the current system.“
The Scottish Labour conference can become a seminal moment, and the start of a new movement to rebalance the whole British economy away from the few, to the benefit of the many. Make sure you follow the Red Robin for the latest developments.