During the pandemic, the rich saw their ranks swell as stock markets soared – even as low-income workers returned to work and blue collar jobs were hollowed out. The upshot is that for the first time in three decades, extreme poverty and extreme wealth across the world have gone up at the same time. As the annual meeting of the World Economic Forum opens in Davos, Oxfam has shown that the gaps are yawning wider: the four richest Britons now have more wealth than 20 million compatriots.
This is underlined by the richest ever prime minister. Rishi Sunak is a multimillionaire, but the real money is inherited. His family’s £700m fortune rests on the 1% shareholding that Mr Sunak’s wife, Akshata Murty, holds in her father’s IT firm Infosys. This has almost tripled in value since March 2020 and entitled her, reportedly, to £6.4m in dividend payments last year. Mr Sunak says he has good intentions. But he and most voters live on different planets. His rise symbolises how political influence is being concentrated in the super-rich. Sensibly, he is skipping Davos, where the wealthy and powerful meet.
Official UK statistics hide the true extent of polarisation. Figures for income inequality do not include capital gains, which make the rich considerable sums and attract lower rates of tax. While a comfortably off voter might think about this in terms of second-home sales, these were dwarfed by the sums made from selling or closing down businesses. The economists Arun Advani and Andy Summers found that by including capital gains with income, the average remuneration of the top 0.01% rose from £4.9m to £8.4m in 2017-18. They also found that the richest 5,000 people’s share of total UK “wages” was 3.6% rather than the 2.2% recorded – implying that income inequality is much higher than previously thought.
The disproportionate gains justify new levies on riches. Britain has wealth taxes. But they don’t work very well. Inheritance tax is avoided to such an extent that the effective average tax rate drops from a peak of 20% on estates worth £2m to 10% for estates worth more than £10m. In 2020, the Wealth Tax Commission costed a one-off wealth tax. Levied at 1% above an individual’s net wealth of £10m, it would raise about £43bn from 22,000 wealthy people.
The cash could, without increasing the budget deficit, be used to ease the intensifying squeeze on ordinary incomes and make up for NHS underfunding. In 2007, the average UK household was 8% worse off than its European peers. It is now a fifth poorer. Inequality-reducing redistribution increases overall wellbeing. Other comparable nations are acting. A new temporary solidarity tax in Spain is to be charged on fortunes above €3m (£2.7m).
Mr Sunak, unfortunately, has said he opposes such levies. A bolder prime minister would claim the moral high ground by paying a solidarity tax. But Mr Sunak is not under pressure from Sir Keir Starmer on this issue. The Labour leader is going to Davos and says his party won’t be levying a wealth tax, signalling a lack of focus on the causes of low growth and high inequality.
Britain has become a place where the rich are extraordinarily rich and the poor are very poor. It needs to be one where the rich are well off, but the poor can also enjoy a decent standard of living. The country can do better, but this will require a clear-headed analysis and bravery that have so far been lacking in political debates.