Tax owning not earning

In the UK it is assumed that the origin of money to be spent on services we all benefit from should be individual taxation, and individual taxation of earnings. A full 45% of government revenue comes from this source (direct income tax and National Insurance contributions), with another 16% coming from VAT. Corporation tax provides only 8% and of the other sources that contribute the rest, fuel duty is the largest component with its 5.5%.[1]

Two points might be made here. First, that the tax burden on individuals has increased rapidly (from £48.8bn. in 1989/90 to £109.5bn. in 2002/3) while that for corporations has not. Despite a massive growth in corporate profits during the same period the tax they paid rose from £21.5bn. to only £29.3bn. During a period of downward pressure on incomes and upward movement in profits individuals saw their taxes rise by 124% while corporate taxation rose by only 36%.[2] The table shows how this has affected the shares of wealth controlled by people in different income brackets.[3] The second point, which is not unrelated, is to question why we do not look further afield for our national revenue, bringing into the equation such sources as assets, land and pollution. Because of this chosen balance of tax base, our taxation system bears unduly heavily on the worse off, whose incomes are increasingly squeezed while the assets of the rich are left untouched.

The focus on income distracts attention from the fact that the heart of inequality in 21st century Britain is assets, whether we think of these in terms of savings, property, a pension fund or land. Between 1990 and 2000 the percentage of wealth held by the wealthiest 10 per cent of the population increased from 47 per cent to 54 per cent.[4] The obvious point is often overlooked that, since an asset both generates an income and removes the need for payment of a cost (for example somebody who owns their own home does not need to pay rent), it is directly related to income.

Our one serious attempt to tax the unearned wealth of individuals—at the point of their death via inheritance tax—is not achieving as much as it could in terms of tackling inequality. There are so many loopholes that those wealthy enough to employ accountants can avoid inheritance tax by setting up a cunningly devised trust or declaring their home a part of the wealth of the nation by allowing oiks entry on a once-per-year basis. A Fabian Society report identified the need to improve the system by making the tax paid relate to the wealth of the inheritor rather than the inheritee:

Taxing recipients rather than donors would properly reflect the purpose of inheritance tax, namely the taxation of unearned wealth. Taxing recipients also ensures that the tax rate is related to the circumstances of the recipient. Levying the tax on recipients might in theory lead to donors leaving their wealth to a larger number of people and therefore achieving a wider and more equal distributions of wealth.[5]

This is also the policy of the Green Party.

[1] All information on the UK tax system from Adam, S. A Survey of the UK Tax System (London: IFS, 2004).
[2] Sikka, P. ‘How about responsible taxes?’, Guardian, 17 November 2003.
[3] Taken from ‘Class, Tax and Spending: problems for the Left in postindustrial and postdemocratic politics - or why aren’t we taxing the fat cats till the pips squeak?’
by David Byrne published in Capital and Class using data from the Fabian Society Commission on Taxation and Citizenship (2000) Paying for Progress.
[4] Pearce, N. and Paxton, W., Social Justice: Building a Fairer Britain (London: IPPR, 2005).
[5] Wealth's Fair Measure by Ruth Patrick and Michael Jacobs, Fabian Society, 2003.

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