Against the tide: UK needs wealth tax to fund public services, not squeeze the poor
September 9th, 2021
September 9th, 2021
The UK has approved one of the most regressive tax reforms in its history with the rise in the National Insurance Contribution (NIC) of 1.25% raising an estimated £10bn ($13.7bn) for the social care sector to take care of the elderly and people with long term illnesses.
The equal hike in dividend taxation of 1.25% will only raise £600 million ($825 million) in comparison per year.
Let’s be clear, this is a deeply unfair tax.
This tax rise is designed to hit the poorest the most, as a person earning an average wage of £30,000 ($41,300) pays 9% of their wages in NIC, a person earning £300,000 only pays 3% of their income in NIC. Just equalising the rate to 12% for everyone except the poorest, as suggested, could raise a whopping £14bn ($19.2bn).
But why not seek alternatives? Ensuring big corporates such as Facebook, Google and Uber pay their fair share of taxes via a no loopholes global minimum tax for instance could raise billions of pounds every year. Amazon’s key UK business for instance paid just £3.8 million ($5.2m) more corporation tax last year than in 2019, even as sales increased by £1.89bn ($2.6bn).
The UK should follow the lead of other G20 countries such as South Africa and Argentina which are making tax systems more progressive while extending Covid-19 relief measures to help the poor. South Africa recently expanded its Social Relief of Distress (SRD) grant of R350 (£17) per month until March 22, along with other social protection measures – which is currently financed via issuing new debt while also raising so-called ‘sin taxes’ on tobacco and alcohol by 8% with further tax rises being put on hold.
Campaigners in South Africa have stated that the grant should be higher than this to tackle poverty, at least at R585 (£30). This should be financed from a Social Security Tax (SST), levied in a progressive way of higher rates on higher incomes, along with wealth taxes, financial transaction and capital gains taxes applied across the board. These and other progressive proposals to tax high incomes and wealth are increasingly seen as inevitable by investors to plug the gaps in public finances, despite fear mongering over capital flight and investor confidence among politicians.
Argentina took the step towards creating a wealth tax in late 2020, applicable for the 12,000 wealthiest people in Argentina (only 0.02% of the population who have declared financial assets of more than $2.5 million), are now subject to a single tax of 2-5.25% of their wealth, which the Argentinean government expects to raise $3.5bn. By April 2021 (4 months since it was passed) the tax had already collected $2.4bn. Lawsuits for example from the estate of Diego Maradona, and other very wealthy people followed but so far have had no effect. These measures are there to finance the Emergency Family Income that was paid from April 2020 to December 2020, and other assistance programmes.
There are multiple other ways the UK could fund social care and protection without passing the costs on people living on low incomes. Most dividends for individual investors for example are actually not taxed, as they are held in tax-free savings accounts known as Individual Savings Accounts (ISAs). As of June 2021, there was £620bn ($853bn) in these tax-exempt ISA savings, with an annual revenue foregone worth £3.5bn ($4.8), with much of this foregone revenue attributed to those earning over £100,000 ($137,000). As the wealthier tend to hold more ISAs, the revenue foregone is almost exclusively with the wealthiest individuals at the moment, and probably half of this revenue could be recouped by capping ISAs.
UK campaign groups also suggest reducing inheritance tax breaks and capping the amount that can be claimed or raising corporate tax to 20% could raise £13.3bn ($18.3bn), and taxing income from wealth at the same rate as income from work would raise a further £4bn ($5.5bn). The UK’s social care and protection system needs urgent funding as the country continues to fight the effects of the pandemic, but taxing the poorest to generate this money is not the way forward.