After pensioners, will Labour come for the wealthy?

In 1990, some 12 nations imposed an additional tax on their wealthiest citizens. Today, it is only three. There’s a reason for that, warns Chris Blackhurst

‘In the end, it may prove inevitable’ (AFP via Getty)

Remember when Peter Mandelson said Labour was “intensely relaxed about people getting filthy rich”?

He made his famous remark in 1998 to a California industrialist. He’s softened since, now saying he is concerned about inequality. But if Mandelson is having doubts, some members of the current leadership of his party apparently have no qualms. They are definitely not happy about people making lots of money.

Furthermore, they’re sensing blood. The public purse is threadbare, and in their eyes, the well-off are there for the taking. While we’re not quite at the class war, “eat the rich” stage, we might as well be. They’re pushing Keir Starmer hard for a wealth tax.

The Tax Justice Network says a temporary levy on the richest households could raise £24bn a year. Sharon Graham, the leader of Unite, is urging the chancellor, Rachel Reeves, to announce a 1 per cent charge on Britain’s wealthiest 1 per cent. She points out that it would bring in vastly more money for the Treasury than the winter fuel payment cut, which has now been voted in.

The pressure comes as the G20 is also looking at the ramifications of a global minimum tax on the world’s 3,000 billionaires. In the US, the presidential hopeful, Kamala Harris, is considering a wealth tax.

In the end, it may prove inevitable. Across the globe, public finances are struggling; meanwhile, the gap between rich and poor has widened and is widening still. The idea of taking away a sliver of people’s fortunes, so little that they would barely notice, is catching on.

For Starmer, elected with a thumping majority, it has obvious appeal. They would not be Labour voters suffering; the rich would scream, but the party’s popularity would almost certainly not dip.

As a politician, he appears to put pragmatism before ideology. He wants to take the safety-first route; he is desperate to win again in 2029.

That caution tells him not to clobber the middle classes, whom he won round back in June and will be relying upon in five years, but to go for a thin section of society – not unlike the decision to charge VAT on school fees. That’s coming in, and only the tiny percentage in the firing line seem to care; the majority are not bothered or are entirely supportive of the measure.

He can also take comfort in the knowledge that such a measure against the wealthy would not be permanent; it would be a one-off, designed to boost the coffers. He would not wish to be anti-rich per se.

That’s all well and dandy, except that the evidence points to such levies being useless and causing more trouble than they’re worth.

In Spain, in 2022, the socialist government introduced a “solidarity” tax. Those whose net wealth exceeded €3m (£2.53m) were hit by a charge of 1.7 per cent, rising to 3.5 per cent for those worth €10m or more.

The yield was paltry at just €632m. Together with other Spanish taxes on the wealthy, the total take amounted to €1.9bn. That might seem substantial, but it was the same as making Spain’s 1.2 million millionaires pay a little more than €1,500 each.

Why so small? Because they saw it coming, and were able to stash their cash, safe from the tax inspectors, in advance.

That would happen in the UK; is happening as I write this. The UK has a highly developed layer of wealth advisers and tax accountants, centred on the City (and for Scotland, in Edinburgh). Ironically, the favoured places for their money, held in trusts and other structures, are offshore tax havens controlled by the self-same British government – in the likes of the Channel Islands, the Isle of Man, Gibraltar, the British Virgin Islands and the Cayman Islands.

Curb their activities – they are also tax shelters for the rest of the world – and the gain for the British Exchequer would far outweigh anything raised from a wealth tax on people living in Britain. But successive governments have been too afraid to go there, for fear of damaging their economies.

Proof of the pudding, regarding the infatuation of some on the left with a wealth tax, should come from the dwindling number of countries making such a move. In 1990, some 12 nations imposed an additional tax on their wealthiest citizens. Today, it is only three – Spain, Norway and Switzerland – and in none of those countries can it be claimed to have been a raging success.

Despite Starmer’s desire not to be seen to be anti-rich, the message it sends is anti-aspirational. Here is a government saying that if you get on, we will penalise you.

The likelihood is that, if you’re wealthy, you will already have paid more in taxes than the average person. Here is the government, burdening you some more.

It may enhance Starmer’s standing among Labour supporters, but it’s hard to deny the international signal it would send that, despite everything else he and Reeves have said, Britain is not open for business. The cost of the turn-off to potential foreign investors who will view a wealth tax as a sign of attitude – as the start of something, rather than a once-only step – is incalculable.

Starmer may have plenty of Labour plaudits and a bit of money to gain, but he needs to think carefully. Not so long ago, there he was, with Reeves, telling the City how much it was loved – such was the importance to the economy of the financial sector – and to an extent, he was believed. Go down this road, and all that romancing will have been well and truly wasted.