Keir Starmer sounds confused about wealth—but then maybe any politician would. The prime minister talks, compulsively, about rebalancing life in favour of “working people”. He modestly raised some capital taxes in the Budget. He has also said that he wants house prices—Britain’s preeminent form of wealth—to fall relative to earnings.
All this makes sense given the swelling of (perennially unequal) private wealth relative to national income: until 1980, that ratio was roughly 3 to 1, but it has climbed to 6 to 1 or more today. Thoughtful commentators across the spectrum trace many evils to this source. When “what you own” counts for more than “what you earn”, you can forget social mobility—an ingenious analysis of Who’s Who has just established that the grip of the wealthy on British elites is rising. During the 20th century the ranks of the wealthy were swelled by new property-owners, but that dynamic swung into reverse in the 21st. House prices have moved beyond reach, condemning millions to insecure private rentals.
And yet the same prime minister, who occasionally sounds as though he grasps such problems, at other times doffs a deferential cap to Big Wealth. Last year, he insisted that “wealth creation” was his No.1 mission (while conceding that this was an “odd thing” for a Labour leader to say). He disavows any general tax on assets, brushing aside the arguments eloquently aired in Prospect by his liberal ally, Phil Collins, and the one-time Cameroonian Conservative commentator, Matthew d’Ancona, who wrote that centrists hoping to duck a wealth tax are “kidding themselves”. And when it came to it, Labour’s Budget raised far more from taxes on work via National Insurance than it did from charges on capital.
In sum, Starmer makes half an argument, then runs away from where it might lead. It’s frustrating—but not surprising. The politics of wealth are always shaped less by logic than manipulation and brute interests. In the 2000s, George W Bush came within an inch of permanently abolishing US Estate Duty, only ever paid by a financial elite, after an emotive campaign to rebrand it the “death tax”. In 2007, George Osborne nixed a general election by promoting an inheritance tax cut worth most to millionaires.
In fact, the very principle of taxing wealth is always vulnerable to the (real but not insurmountable) technical challenge of devising ways for people with lots of resources locked up in illiquid assets to pay out to the government. Even in social-democratic Norway, where I spoke to officials in the aftermath of a modest rise in their wealth tax, the discussion gets warped. Thinktanker Magnus Marsdal described how the super-rich snuck into the debate via “Trojan mice” such as family firms with substantial book values but few ready assets.
After the Budget restricted agricultural inheritance relief, we saw “Trojan tractors” drive through British politics. The likes of Jeremy Clarkson, who is on record saying that he bought a farm to pay less tax (though he now claims he only said so because it was a “better PR story”), persuaded hard-pressed hill farmers that they would somehow be ruined by a special reduced-rate tax, often only chargeable on estates of over £3 million.
We can hope against hope that Starmer will boldly confront vested interests, but we also need to admit that, in the wealth context, this is a tall order even for politicians of unbending principle. There are still more voters in the “own something” category than in the growing “own nothing” one. This new wealth divide now shapes elections far more than the old class schism. Whereas Focaldata’s post-general election analysis shows the Labour vote share was within a point or two across all occupational grades, its score was 17 points higher among renters than (wealthier and more Conservative) outright homeowners.
Besides, even a politician who could survive the tax fight and get all the tricky technical details right would face a brutal coda. All the revenues the Exchequer could hope to raise from any feasible new tax on wealth would currently have so many pressing claims on them—rising interest payments on big public debts, security in a dangerous world, pensions and healthcare in an ageing society, etc—that there would be nothing left for asset-endowment schemes to close the wealth gap. We’ll be looking at the “de-distribution” rather than the “re-distribution” of assets for a time to come.
So how can we more realistically tackle the undoubted problems wrought by Big Wealth? In a new paper for the IPPR thinktank, I argue that, as well as tapping the extraordinary quantity of private wealth through tax, policy must grapple with its quality.
It’s no good being against all wealth. There are, plainly, types of assets we need to build—homes in which we can live, factories in which we can produce, organisations in which we can work efficiently. There are others, such as biodiversity, which we are duty-bound not only to use for the good of humanity, but also to conserve. And yet our Big Wealth era has not helped on any of these fronts, being instead marked by stagnant wages, exorbitant housing and environmental degradation. We have grown the wrong type of wealth—and in the wrong way.
Virtues of thrift, industry and prudent investment, which stubborn Victorian ideas still vaguely connect with wealth have played no part in its new rise. If riches are now swelling to the sort of relative scale—and even enjoying some of the same societal powers—that they enjoyed before 1900, it is for very different reasons. Forget the squirrelling away of funds in building societies: our savings ratio is among the lowest in the “developed” world. On the Balance of Payments, Britain has been continually in the red since 1984. Capital investment reconciles wealth with “working people” when it enables them to earn more. Britain hasn’t been doing it. Aggregate investment has been sluggish since the 1970s; business investment plunged with the Brexit vote and wages have stagnated.
This unmooring of wealth stocks from the so-called “real economy” isn’t just a British phenomenon. According to the European Central Bank, at the depth of the Euro-crisis, stricken Cyprus recorded higher average household wealth than Germany, whom it was then begging for a bailout. This Cyprus paradox is explained not by the creation of new assets but the inflating of established ones. As Mark Twain (“buy land, they’re not making it anymore”) well understood, this is a process divorced from the production of anything. Former financial regulator Adair Turner has shown that rocketing urban real estate overwhelmingly accounts for the wider rise of modern wealth. High prices reflect a fundamental mismatch between an insatiable demand to live in the nice parts of town, he suggests, and the inescapably limited supply of space there.
So Big Wealth can be a story of collective scarcity, rather than the abundance which Starmer sometimes uses “wealth” as a synonym for. It is a tale of value, not volume, of prices, not production—which is how it has burgeoned in our spendthrift and underinvesting society.
Some politicians are relaxed about this order of things. George Osborne was reported as quipping to the Coalition cabinet that: “Hopefully we’ll get a little housing boom and everyone will be happy as property values go up.” But when this age of Big Wealth is locking too many out of property ownership and other opportunities, we cannot afford such complacency. Progressives must instead find a way to disentangle the creation of new and socially purposeful assets from riches that arise from scarcity or accrue at somebody else’s expense.
Where to start? Perhaps with the ethical socialist and historian RH Tawney, who in 1921 interrogated the great spectrum of institutions described by the single term “property”—from the socially “functional” to the purely “acquisitive.” At one end of his range are small peasant landholdings and artisans’ tools, things indispensable to their work; at the other extreme could be a lucrative share in the title-deed of land on which somebody else is organising the extraction of gold. In between are socially negotiated arrangements, such as time-limited patents contrived to crystalise property from an idea. Liberal ideologues since Locke had dressed up all property in inalienable rights; Communists condemned it all as exploitation. Tawney rejects both positions and grapples with the variety of “properties” in the light of social needs.
With “wealth” we might usefully do what Tawney did with “property” and “discriminate between the various concrete embodiments of what, in itself, is, as he put it, “little more than an abstraction.” Exactly which forms of wealth are socially valuable will be contentious. There will be fuzzy boundaries and an inevitable clash of perspectives. Any wealth, after all, is useful to the owner and “bad” wealth can be spent on doing “good” things.
I can only sketch provisional criteria to debate, but, in that spirit, policy might want to support, first of all, wealth that arises through the creation of a new asset in the world, rather than that which is more the product of scarcity than anything else (think Bitcoin, bullion and perhaps prime real estate). Such an approach might also recognise the distinct value of wealth that gives rise to demonstrably additional income through new opportunities to earn, and not that which essentially diverts income from one person to another, for example through rent. And, indeed, it would prefer wealth that is compatible with a sustainable environment and the good life to that which degrades those things (think of shares in a polluting company).
There are other positive criteria, too: wealth which can more reliably be tracked and taxed should be preferred to that which can shift shape and slip between jurisdictions; as should wealth held in forms where downside risks sit squarely with the owner, rather than the kind where a serious wobble may necessitate public bailouts. And wealth that provides finance to places and activities that demonstrably need it, rather than that (such as arcane derivatives) which arises from contracts and trades whose ultimate function is obscure and which have so often turned out to be about little more than dumping hidden risks onto somebody else.
Because a whole host of social arrangements condition the asset mix, an array of policy levers can help pursue better wealth. To see the breadth of reckoning that could be catalysed, just consider one area: housing. Sometimes, a wealth prism simply illuminates a thorny dilemma. Restrictions on new build, for example in the green belt, usefully conserve amenity (i.e shared “natural wealth”) but at the expense of restricting supply, which pushes up prices and tilts the balance of housing wealth from the “created” towards the “inflated”.
Sometimes, however, a discriminating wealth prism points towards a clear solution, by exposing the isolation of particular vested interests against the broader public interest. The compulsory purchasing regime, for example, determines how far the wealth embodied in new housing will be captured by lucky farmers who own those fields where the value balloons when planners designate them for the bulldozer. A country crying out for homes should not defer to them. Or consider the 1988 Housing Act. It increased the value of housing wealth for landlords by empowering them to rapidly clear out, on a “no-fault” basis, any tenant frustrating them in maximising rental returns. This provision exemplifies the way that laws affect how far—or not—wealth can be accrued by curbing security or extracting ever-more income from somebody else. The Starmer government has, quite rightly, earmarked it for the chop.
From demarking the domain of intellectual property to determining the circumstances when a pension can be inherited, state decisions affect the wealth mix. By simply keeping that mix in mind as all manner of decisions are taken, over time we could isolate and act against assets based on nothing but inflating and taking, while fostering those that work for society. In the process, we can call time on an age where too many toil away for wealth they will never share in—and move towards the sort of wealth that serves us all.
