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From: Harry Lambert <saturdayread+the-saturday-read-feature@substack.com>
Date: Wed, 30 Aug 2023 at 18:26
Subject: The Saturday Read Feature: Britain’s Great Tax Con
| View in browser The SR Feature: Britain’s Great Tax Con It entrenches inequality, stymies growth, and rewards wealth over work. Who will fix it? THE NEW STATESMAN, WILL LLOYD, AND HARRY LAMBERT AUG 30 READ IN APP Good evening. Welcome to the Saturday Read Feature, our way of sending you early access to our cover longread. This is Harry, along with Will.Today’s is on Britain’s great tax con. The UK’s tax code entrenches inequality, stymies growth, and rewards wealth over work. Tory chancellors have only weighted the system in favour of capital since 2010. It is stacked against working people. Will Labour fix it?The piece begins below. Click through to read it in full – it’s free to read today. (If you would just like to receive the main email you can adjust your settings by clicking through to Substack.) Read the piece Labour is heading for power as an incoming party for the first time in 26 years. What will it do with it? Its leader, Keir Starmer, and its shadow chancellor, Rachel Reeves, are reluctant to say. Reeves has, however, taken one adamantine position: Labour will not introduce new taxes on wealth, as she first told the New Statesman in June and recently reiterated to the Telegraph. This is less tenable than it appears. Labour will soon face an inescapable choice. In order to spend money in government the party will need to raise it. There is a very good way to do that. It is to shift the tax burden away from labour and on to capital, away from work and on to wealth. An agenda is coalescing in policy circles around a set of major tax changes that could spur growth, cut taxes for most people, and raise the money Labour will need. The party, haunted by ghosts, is unwilling to embrace it. By raising taxes on wealth, Labour could, crucially, cut taxes on income. The reforms available to Labour, detailed here, would raise £28bn a year. That could fund the £28bn a year Labour once wanted to commit to green energy, or it could allow Reeves to cut the basic rate of income tax by up to 4p – a tax cut every employee would notice, and one that would silence Conservative claims that Labour is a high-tax party. By taxing capital, Labour, the party of labour, could actually reward work. Starmer and Reeves are following an electoral script written for a different era. Britain has been transformed since Labour won in 1997. One part of the country has lived through an asset boom. The other is living on wages that have not risen in real terms for 15 years, since before the 2008 financial crash. For those with assets, the crash is a distant memory. London house prices have risen inexorably since 2010, by 31 per cent after inflation. The FTSE 100 is 58 per cent higher after dividends. Real average weekly pay is, meanwhile, no higher today than in July 2006. Those who live in Asset Britain have no idea what Austerity Britain is like. Labour is ignoring wealth at its peril. Reeves is rejecting the most consequential tax reforms open to her, despite polling that suggests each reform she has ruled out would be highly popular. They are also vital. Britain’s growth rate is in a multi-decade decline, while wealth inequality has become entrenched. It hasn’t fallen in the 17 years the Office for National Statistics has recorded it. Every year you can expect £4 in every £10 of new wealth to go to the wealthiest 10 per cent, while £1 in £10 is shared by the bottom half. In stagnant societies, capital reigns. The Tories have lost credibility, gifting Labour a generational opportunity to be heard. There is no better story Starmer could tell than the story of tax: who it serves, who it exploits, and how it could be fixed. The most important fact about the British tax system is that almost no one knows anything about it. If they did, it would not last for long. It not only punishes work at the expense of wealth but poorer homeowners at the expense of richer ones, the tenant in favour of the landlord, and anyone who does not inherit capital, almost all of which is passed on untaxed. (Only 3-4 per cent of the £120bn in gifts and inheritances passed on in the UK each year is taxed.) The very richest, who sit on vast estates, pay lower rates of tax than the staff they invariably employ. There is no equal starting line in life. But in Britain the rules of the game have been fixed. To grasp the secrets of British wealth, you need to go to the 11th floor of an unassuming 12-storey office block in Stratford, east London. Book an appointment, request your files, show an ID at the door, and the staff of His Majesty’s Revenue & Customs will escort you to a secure room filled with ten offline computers. In July 2021 Arun Advani – an assistant professor of economics at the University of Warwick who has spent the past six years investigating who does and does not pay tax in Britain – took a seat and punched in his code. Forty million anonymised tax records filled his screen. He had come to Stratford with a question to answer. If you increase taxes on the rich, do they in fact leave the country? Read the piece Have a good week, and catch you on Saturday for the main email. Thank you. — Harry & Will |
