Keir Starmer and Rachel Reeves have been urged by a group of the world’s leading economists to use the autumn budget to prepare Britain for the introduction of a new wealth tax to tackle “extreme” levels of inequality.
With the government under pressure to raise taxes, the group of economists, including the French expert on wealth inequality Thomas Piketty, said the UK prime minister could raise “tens of billions of pounds” while positioning Britain as a progressive leader on the world stage.
In a letter shared with the Guardian, the experts warned that wealth in Britain – like many rich countries – had become concentrated in fewer and fewer hands in recent decades at the expense of the nation at large.
It comes as the chancellor, Rachel Reeves, faces mounting pressure from senior Labour figures and trade unions to raise taxes on wealth to cover a multibillion-pound shortfall in the public finances.
“Keir Starmer and Rachel Reeves can build a tax system fit for the 21st century – that promotes fairness, first-class public services and good living standards for everyone,” the economists wrote.
“We cannot allow extreme wealth inequality to deepen while millions of people are consigned to struggle for a basic quality of life. A progressive wealth tax is a critical step forward, and one that we urge the UK government to take.”
Signatories of the letter include the leading Indian development economist Jayati Ghosh, José Antonio Ocampo, a former Colombian finance minister and ex-UN undersecretary-general for economic and social affairs, and the globally acclaimed economist Ha-Joon Chang.
The group of more than two dozen signatories said a “modest” net wealth tax on assets of more than £10m could raise “enormous sums of money” that could be used to avoid a return to austerity while tackling rampant inequality.
Reeves is reportedly prepared to reject backbench Labour demands for the introduction of a new tax on wealth, although has so far publicly refused to rule out the measure. Advocates include Neil Kinnock, the former party leader.
Several of her cabinet colleagues have poured cold water on the idea, including the business secretary, Jonathan Reynolds, who last week publicly denounced a new levy as a “daft” idea that would not work.
It is believed the Treasury would prefer to use existing features of the tax system – including levies on capital gains, inheritances and pensions – to raise money from rich individuals rather than dedicate resources to create and administer a new levy, which could have mixed results.
The Institute for Fiscal Studies has argued that a dedicated new levy could deter investment in Britain and would be a “poor substitute for properly taxing the sources and uses of wealth” through other means.
It said that implementing a wealth tax would be difficult, requiring a new administrative apparatus to value assets, which could be open to rich, well-advised individuals shifting around their holdings to game the system. Critics also say super-rich individuals could leave the UK.
While stand-alone wealth taxes are used in some European countries – including Spain, Norway and Switzerland – several other leading nations – including Austria, Denmark and Germany – have abandoned them.
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However, the leading economists said it would be possible to overcome the difficulties associated with the design and administration of a new wealth tax, urging the UK government to launch a consultation at the autumn budget.
“Starting at the autumn budget the pieces of the puzzle – from consultation to design – can be collected to allow the government to roll out a wealth tax within this parliament. This could improve people’s lives in years to come and avoid austerity for key services we all benefit from,” they said.
The campaign group Tax Justice UK, which coordinated the letter, has estimated that a 1%-2% wealth tax on assets of more than £10m would affect only 0.04% of the population, and could raise up to £22bn for the exchequer a year.
Ghosh, backing the call for a wealth tax in the UK, said: “Not only is a net wealth tax a vital step to tackle inequality and improve living standards, but it is obviously best done with international cooperation.
“Keir Starmer and Rachel Reeves can position the UK as a progressive leader on the world stage. We urge them to work collaboratively with the international community to ensure that the super-rich pay their fair share, wherever they reside.”
A Treasury spokesperson said Reeves was focused on growing the economy to strengthen the public finances.
“We are committed to keeping taxes for working people as low as possible, which is why at last autumn’s budget, we protected working people’s payslips and kept our promise not to raise the basic, higher or additional rates of income tax, employee national insurance or VAT,” the spokesperson said.
