Labour targets UK’s wealthy as budget looms
Labour has revealed plans to tax valuable property and levy bankers’ bonuses if it wins the next election. Could the moves create a fairer society, or will they simply antagonise the rich?
The countdown to next Wednesday’s budget announcement has begun, and with next year’s general election also on the horizon, political battle lines are being drawn.
Labour, the official opposition, made it clear this week that if the party triumphs in next year’s vote, the rich will be hit with a £6bn tax raid. In true Robin Hood style, shadow chancellor Ed Balls would take money from the rich by picking the pockets of bankers when they receive their generous bonuses and imposing a levy on valuable property. This will enable him to give to the poor by funding a new jobs scheme for the young.
In stark contrast, the chancellor George Osborne is currently battling to prevent a cap being imposed by the European Union on what bankers earn. The banks have come under increasing pressure to justify stratospherically high bonuses: £5.5bn was handed out to staff by Barclays, HSBC, RBS and Lloyds this year.
Balls believes more of this money should be siphoned off by the government to fund worthy projects for the worse off. He has also promised a mansion tax on homes worth more than £2m, and to raise the top rate of income tax from 45p to 50p for those who earn more than £150,000.
In theory, Labour’s message is appealing; a move towards social justice, designed to assuage indignant cash-strapped voters. The richest one percent has as much wealth as 60% of the UK’s population combined, and according to one report, London has more ultra-wealthy individuals than any other city in the world.
But as Louis XIV’s finance minister once said: ‘The art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing.’ The hissing could turn into a deafening racket if Balls has his way.
Two sides of the coin
Does the money earned by the rich belong to them, or to society? Labour politicians talk more frankly about redistribution of wealth since banking fell into disrepute after the 2008 financial crisis. Those who earn huge sums can afford to give more of their vast earnings to the nation’s poorest, they argue. Better still, impose taxes on properties, pensions and other assets — such wealth is often unrelated to the efforts of the owner.
But others say that targeting the rich is the opposite of fair — they earned the money, they should keep it. Over-zealous taxation can discourage entrepreneurship and investment: why take risks if you lose the rewards? Others claim that Balls’s political point scoring will antagonise the rich to the detriment of the UK. Pluck their feathers any more, and these golden geese might spread their wings and migrate to pay tax in more welcoming climes.
- Is it fairer to increase the amount of tax the rich pay, or fairer to leave people more of their own earnings and wealth?
- Some people have referred to tax raids on the wealthy as ‘the tyranny of the majority’. What do you think is meant by this phrase?
- In pairs, perform a role play: one of you is wealthy, and the other poor. Take it in turns to make your case about whether taxes on earnings and assets should increase or not.
- Write a 400-word essay about whether you think the tax system should consider the interests of the individual first or those of society as a whole. Give your reasons.
Some People Say...
“What at first was plunder assumed the softer name of revenue. Thomas Paine”
What do you think?
Q & A
- I don’t earn money or own property, how is this relevant to me?
- You will earn money one day soon, so you may as well clue-up now on how much you will be taxed, and whether you think the system is fair or not. Besides, the budget is just around the corner, and it affects the spending power of every family and individual. Sometimes there are unexpected bombshells, serious and silly: in 2012, George Osborne even tried to implement a tax on Cornish pasties, which was reversed after an outcry.
- Osbourne’s not thinking of attacking hot snacks again, is he?
- No, but the chancellor has promised a budget of ‘hard truths’: the Conservative plan is to brand Ed Balls and Labour as reckless spenders who despise wealth creation. As the May 2015 election gets closer, this dividing line will be drawn deeper.
- Ire has been further stoked by the fact that many banks had to be bailed out at taxpayers’ expense when the economy crashed. Royal Bank of Scotland (RBS), Lloyds TSB and HBOS had a total of £37bn injected into them in 2008.
- Raise the top rate
- This would mean that half of what a person earns over £150,000 would have to be paid to the Treasury, to be passed on to government spending departments. In the UK, the top one percent of earners already pay 29.8% of all UK income tax.
- According to the annual Wealth Report by Knight Frank, a property consultancy, the number of ultra-wealthy individuals in London is 4,224.
- Those with at least $30m in assets, aside from their main home.
- Boris Johnson, the mayor of London, is a prominent critic of Ed Balls’s plans. He believes that if you allow the rich to keep a bigger proportion of their earnings, they will be more inclined to go out and make more, and in the long run this actually results in more tax income for the government. According to Johnson, Labour is planning to hike tax rates not because it is sensible economics, but because the polls show that it’s a popular move.
- Politicians are often afraid of setting tax rates too high as they fear it could deter the world’s top talent from working in the UK, and particularly in London’s financial sector. This in turn could mean less money coming into the economy, as they seek higher salaries and lower tax rates overseas — sometimes referred to as a ‘brain drain’.