Each type of tax seems to carry its own set of largely emotional attachments. Take the debate over a wealth tax. It rears its head from time to time but has not emerged in any significant form from the Treasury portals. It did not appear in the Labour Party’s manifesto before the last election. The October budget introduced a high value council tax surcharge for properties valued at over £2mn: a fairly modest proposal.
Many commentators have noted that there is relatively little tax on wealth, whereas income seemed to be taxed more heavily. Thomas Piketty discusses the issue at length in his book Capital. As wealth has increased, the imbalance worsened. The Wealth Commission Report, produced in 2020 by the LSE, concluded by contrast that a one-off wealth tax would be an effective way to raise significant sums. It would be difficult to avoid if constructed properly, that is, set at low levels so as not to act as a disincentive.
When you consider the massive increase in wealth in the post-war years, it’s staggering that serious attention to a wealth tax has not taken place. Most people are immeasurably richer today than, say, 50 years ago. If we just look at house prices, according to the Nationwide index, the average house price in 1966 was around £3,400 and by 2024 had risen to around £260,000. If we factor in other forms of wealth (shares and other types of savings, for example) there is considerable wealth which, for the most part, is untaxed. Assets are taxed on disposal via Capital Gains Tax or on death with Inheritance Tax (IHT), and the latter with quite high limits. There is no annual wealth tax.
The Equality Commission in 2024 showed that the poorest 10% paid 48% of their income in tax in 2022/23 whereas the wealthiest 10% paid only 39%.
The disincentive effect
A frequent argument to emerge when a tax on wealth is mentioned is the disincentive effect. People would leave the country if it were instituted. Yet the disincentive effect on the high levels of tax paid by the poorest is seldom mentioned. It seems to be a principle in our society that the wealthiest need to be incentivised, whereas the poorest don’t.
It cannot have escaped the sharp eyes of the Treasury nor successive Chancellors that there is this vast source of untaxed wealth waiting to be tapped. By some estimates, a 1% or 2% level would raise tens of billions. Instead, we get budgets which tinker with existing taxes, adding a percentage here or lowering a level there. But no wealth tax. Why?
I can only speculate since many of the reasons given are unconvincing. Firstly, it would be a huge change. To introduce a wealth tax and lower income taxes would require an enormous amount of training and organising. The uncertainty of a wealth tax may well mean the benefits of lowering income tax may not show through for several years. It would be a brave chancellor to unleash such uncertainty on the voting public unless they were well prepared.
Wealth’s influence on tax policy
You only have to consider the enormous backlash when the present Chancellor changed the Inheritance Tax for farmers in her first budget. The Government was subsequently forced to make a humiliating U-turn just before Christmas, raising the threshold significantly at which it will come into effect. Or the wounding Theresa May endured with her attempts to change tax arrangements for elderly care which became known as the ‘dementia tax’. And of course, the Poll Tax which led to riots and the demise of Margaret Thatcher. Fundamental changes seem to arouse great passions and spell potentially mortal danger for prime ministers or chancellors.
Importantly, those in positions of power and influence are, for the most part, wealthy. The media oligarchs, the tech bros who own the internet sites, those in the House of Lords, many MPs, senior journalists, and TV presenters are all people who are wealthy, and in some cases, substantially so. They are, individually and collectively, in a position to frustrate such a move. If they so wish, they can cast the proposals as an attack on freedom, claiming that to stoke the politics of envy will lead to a mass exodus of the talented, the entrepreneurs and the wealth creators. They can paint a picture of Knightsbridge, Belgravia, and Mayfair becoming ghost towns with tumbleweeds blowing down Holland Park Road, now devoid of its Porsches and Lamborghinis. They can claim their mass departure will plunge the country into penury.
Adam Blenkov, in the January 2026 edition of the Byline Times, discusses the distortion of the national news media by the “warped system of Westminster reporting”. In the article entitled Lies and the Lobby, he describes how the media ranks concentrated almost exclusively on the largely exaggerated claims that Rachel Reeves had “lied” to the nation prior to the budget. Included in his criticism were BBC reporters, particularly Laura Kuenssberg. Positive aspects of the budget almost disappeared. He shows how balanced reporting of any such change is unlikely to happen.
Psychology of the wealthy
The wealthy are prone to viewing their success purely as a result of their own efforts. They are often to be heard disparaging the state as inefficient, getting in the way or even corrupt. The notion of giving the state yet more tax is anathema to them. Too much, they feel, is spent on welfare given to people who for one reason or another don’t want to work or are simply undeserving. The recently wealthy claim they worked hard, took risks, and want to enjoy the fruits of their success unencumbered by tax.
Only, the tech billionaires and other wealthy entrepreneurs didn’t gain their success purely by their own efforts. As Mariana Mazzucato showed in her book The Entrepreneurial State, virtually all the technologies we now enjoy – including the key technologies which enable mobile phones to work – were developed in laboratories, universities or other facilities funded by the state. This risky early-stage research was ultimately taken up by entrepreneurs to become the corporations we know today. This is not to deny the skill and contributions made by these individuals but to point out that they capitalised on state funded research and funding.
And of course, their corporations need trained people. They need roads to deliver their products. They need a justice system to protect their interests. They need electricity to light and power their factories and offices. In other words, they need a functioning state to prosper.
What do we mean by ‘wealth’?
Of course, it does depend on what you mean by “wealth”. Many of those who are by any definition wealthy and able to afford the finer things of life do not see themselves as such. This is partly because it is human nature to always want more and partly because of the awareness that there are others who are wealthier. There is a kind of social pecking order. Wealth in this context is not just about money but about prestige and status.
Studies of wealthy people, by Prof Paul Piff of the University of California, Berkeley, among others, have revealed other characteristics. Wealth, his studies show, increases a sense of entitlement and a focus on self-interest. Feelings of compassion and empathy diminish with increasing wealth. These feelings are less likely to lead to a benign view of the state and its desire for more taxes, especially if they are to help the “unworthy”.
Stuck in a groove
This combination of political influence, narrow reporting, psychological beliefs around self-worth and achievement, and a disdain towards the state leaves us in stasis. The debate, such as it is, is stuck in a groove.
The wealth lobby is sufficiently influential and present in all the key positions in our society to make a shift from income taxes (borne mostly by the poorest) to some kind of tax on wealth (borne by the wealthiest), a daunting prospect for any government. But it raises the question: should policies about a crucially important aspect of our political life be decided based on fear of media backlash, threats from the wealthy to leave the country and a likely welter of mis- or disinformation in our media? What is the point of elections if key decisions are avoided because of the power and influence of the well-connected?
At some stage, we have to face up to the ever-increasing wealth imbalance and who should be funding the state’s activities. The IHT U-turn for farmers is significant and illustrates the acute dangers for a government in trying to engineer a shift.
The protests by celebrities, streets and motorways blocked by tractors in London and other cities, a media storm, and troublesome backbenchers await any chancellor wanting to make fundamental changes. They will not achieve these changes unless they spend time on explaining what needs to happen. They must secure the support of the millions of low paid and explain to them that the current system is desperately unfair – for them. Perhaps Leona Helmsley was right when she said, “Only the little people pay taxes”.
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