By Adrian Sinfield, Professor Emeritus of Social Policy, University of Edinburgh. Adrian is a member of the SPA Tax and Social Policy Group
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Why are wealth inequalities even more neglected than income inequalities when they are so much greater? The difference has become even more significant as total wealth is now six times larger than income compared with only three times some forty years ago.
So long-established wealth inequalities have not lessened, as generally uncritically assumed. They are actually intensifying with contemporary asset price inflation and the wealthiest gaining a greater share. Yet the ways that these very much greater inequalities in wealth than income impact on society, politics and economy are still little recognised. Analysis of the common wealth of public and other key services and their funding is consequently restricted, if not distorted, unless we take into account the total wealth of society, how it is distributed and its effects.
This partial picture leads to blinkered policymaking including taxing. Policy proposals to reduce poverty are invariably met by ‘Where will the money come from?’. Only occasionally is the answer to tax to reduce wealth inequalities. Even those proposals that do emerge have lacked sustained momentum for change despite growing evidence on both the increased wealth inequality and the harms that its excess causes.
Detailed analyses of wealth statistics need to be accompanied by closer examination of the ways that the basic tax codes and their operation form a neglected part of the basic structure of society underpinning its values with a harsh impact on social justice. They serve to maintain enduring patterns of social and racial wealth inequalities and power. The pervasively long-term influence of tax policy is well demonstrated by the astonishing preservation of the 18th century Non-Dom provision.
Private wealth has become increasingly dominant following the dramatic reduction in public wealth brought about by recent government policies. But the social scientific community has been failing to take sufficient notice, let alone proper account, of the ways that the inadequacy of taxes, and those affecting wealth in particular, are not only constraining public social policies but also thinking on policy research and options for change. One example is the way that costly tax reliefs promoting and subsidising the building of private pensions benefit the better-off more. One major, but almost invisible, effect is to widen the extent and impact of gender inequalities in wealth. Long known in government, scant remedy has followed.
Barriers to Change
The barriers to building a broad-based coalition to tackle the historical injustice of great wealth inequality continue to be quietly and effectively maintained by groups and interests developed and supported by those with wealth. As a result they have been particularly able to resist changes through family offices and many other little-scrutinised devices. But those likely to be made losers by tax changes are not all powerful, however resistant and resentful they may be. Their dominance has been little challenged with the wealth defence industry remarkably neglected in social scientific research, let alone policy-making.
Reactions to various tax options proposed to reduce the inequalities in recent years are particularly revealing of the mistaken perceptions of wealth inequalities. Outstanding barriers to addressing the gross inequalities have been little challenged. For example, what politicians believe the public think is due more to tax folklore and historical events than to regular surveys of social attitudes. Note the assumption that any reform to council tax will lead to the poll tax response.
Blinkered government
Within government the inadequacies of the UK budget process hamper good preparation and scrutiny. Not only does the ‘rabbit-out-of-the-hat’ trick of the budget theatre limit public and political discussion then as well as in advance, but insufficient lead time is made available within government to work up detailed plans for the budget. Eight weeks is the typical time span in the UK with often little involvement of ministries outside the Treasury. Civil servants do not have prepared blueprints for reform and cannot commit scarce resources to work them up just in case. Options need to be commissioned by ministers.
Tax administration at all levels and stages needs closer and more sustained scrutiny, building for example on the work of the National Audit Office and the Public Accounts Committee. Examination of the delivery of tax policies on politically very sensitive topics such as reliefs from wealth-related taxes reveals differences in treatment of tax expenditures and social security and other public services. While tax reliefs tend to benefit the better-off especially, the tighter control of social security benefits affects those generally with less resources. In contrast to the close scrutiny of these benefits only 25 of the 343 tax reliefs officially classified as tax expenditures have been evaluated by HMRC since 2015 with less than £1 million a year spent on such work.
International Dimensions
Despite the valuable growth of the World Inequality Database, sustained comparative analysis of wealth across many dimensions and disciplines is lacking. The ways, for example, in which national fiscal policies are constrained by international tax rules are not sufficiently recognised. There is potential in the Global Anti-Base Erosion Rules (GloBE) to ensure larger multinationals pay a minimum level of tax in each country where they operate, but it is yet to be put into effect by individual countries. While there has been increasingly wide support to tax the super-rich, the barriers facing those trying to bring about such tax changes internationally are considerable but little discussed and rarely brought into public debate.
The conference Wealth Inequality, Tax and Social Policy
These are key themes from the first in-person conference of the Social Policy Association Tax and Social Policy Group at LSE in January. Speakers and panellists presented key findings and their policy implications. Discussion promoted by fine moderation was vigorously pursued by a lively audience from a variety of disciplines and bases in higher education, thinktanks and public services.
A final session emphasised the need to maintain momentum on pursuing these issues. Identifying the key gaps in the available data will be one element. Much more also needs to be undertaken into examining the subterranean impact of long-established principles underpinning tax codes and practice. The isolating effect of treating as a ‘tax system’ what now amounts to a hotch-potch of different taxes must be resisted since it impedes closer scrutiny of individual taxes in relation to public policies including benefits and services.
Participants
- Mike Savage - Professorial Research Fellow, International Inequalities Institute, and lead for the Wealth, Elites and Tax Justice theme, LSE.
- Rajiv Prabhakar - Senior Lecturer in Personal Finance, Open University.
- Polly Toynbee – Writer and journalist, The Guardian, moderator of afternoon panel discussion.
- Andy Summers - Director of the Centre for the Analysis of Taxation (CenTax) and Associate Professor in Law, LSE.
- Liz Mann - ESRC Postdoctoral Fellow, LSE.
- Andy Morrison - Director, National Audit Office, Newcastle.
- Tommaso Faccio – Head of secretariat of the Independent Commission for the Reform of International Corporate Taxation.
- Adrian Sinfield, Professor Emeritus of Social Policy, University of Edinburgh, co-edited and contributed to Taxation and Social Policy, Policy Press, 2023. With Agustin Redonda, Council on Economic Policies, Zurich, Sarah Kerr, LSE, and Sally Ruane, DMU Leicester, he helped organise the meeting.
SPA Tax and Social Policy Group
The Group aims to foster a greater interest in and understanding of the nature of taxation and its relationship to the core concerns of social policy, including resource allocation, inequality and social welfare. Read more about the group here.
It welcomes further members – please contact Sally Ruane sruane@dmu.ac.uk
See also: Redonda, A. and Aliu, F. Beyond the Budget: Unveiling the Hidden Role of Tax Expenditures in Social Policy. Council on Economic Policies (20 November 2024)
Adrian Sinfield, Professor Emeritus of Social Policy, University of Edinburgh
Image credit: Micheál Collins