Almost a quarter of all household wealth in the UK is held by the richest 1% of the population, according to alarming new research that reveals a historic underestimation of inequality in the country. The study found that the top 1% had almost £800bn more wealth than suggested by official statistics, meaning that inequality has been far higher than previously thought. Researchers said the extra billions was a conservative estimate and could well be more. The revelation comes amid calls for ministers to consider a new wealth tax or substantial reforms to existing levies on the rich, so that they play a bigger role in helping the country deal with the Covid fallout and the costs of an ageing population. Demands for a mansion tax are also being revived.
Around 5% of the total wealth held by the very richest households has been missed by official measures, researchers at the Resolution Foundation think tank found. It discovered the missing wealth by comparing official statistics compiled by the Office for National Statistics with data from the Sunday Times Rich List. It discovered that the official data struggled to capture the assets of very wealthy households. Taking the newly discovered billions into account has a significant impact on the share of total UK wealth held by the top 1%, increasing it by more than a quarter – from 18% to 23%.
Wealth inequality fell throughout much of the 20th century, with the proportion of wealth held by the richest 10% falling from more than 90% to around 50% by the 1980s. However, the Resolution Foundation said it had been flat or increased slightly in recent decades. Wealth has been fuelled by rising asset prices since the financial crisis, such as soaring housing values, land or stocks – rather than through active saving. Between 76% and 93% of financial wealth gains since the crisis have come through the rising value of assets such as housing.
Rishi Sunak, the chancellor, has faced recent calls to sanction a one-off wealth tax on some households in a move that could raise up to £260bn for the post-Covid recovery. The call came from the Wealth Tax Commission, made up of leading tax experts and economists convened by the London School of Economics and Warwick University. The group said that targeting such a windfall tax at the richest households would be the fairest and most efficient way to raise taxes in response to the pandemic.
In November, a study commissioned by the chancellor also recommended reforming capital gains tax by slashing the annual allowance. The move, backed by the independent Office of Tax Simplification, would hit wealthy individuals with assets such as second homes. Even before Covid, the Treasury faced large spending demands in areas such as social care. Health and welfare spending is set to rise by £38bn a year by 2030. The Resolution Foundation said wealth taxation “will need to play a bigger role in the economy over the course of the 2020s”.
“The foundation is calling on the chancellor to embark on the biggest reforms to wealth taxation in a generation – including via the restriction of capital gains and inheritance tax reliefs (together raising several billion), and adding a council tax supplement of 1% on properties worth over £2m (raising over £1bn).”Economic cost of Covid crisis prompts call for one-off UK wealth tax.
Article source: The Guardian