Last year saw middle-class Brits squirrelling away cash at record levels, with savings piling up in the bank accounts of the so-called ‘sourdough savers’. If, like me, you’ve spent the majority of the pandemic working from home, not commuting, and unable to go out or travel, then it’s likely the state of your household finances are a rare spark of light in dark times. For many, in fact, 2020 was a bumper financial year. The Bank of England has observed that extra savings were concentrated in the wealthiest households.
For others, the financial impact of Covid has been bleak. Despite government support schemes like furlough, nine million people have had to take a loan out because of the pandemic. The Resolution Foundation reported serious financial stress, with 54% of the lowest-income families forced to borrow to pay for food and housing.
But this division is not new. Last week, it emerged that the UK was already at a decade-long high in terms of income inequality when the virus hit the country. The incomes of the poorest fifth of households were in freefall before Covid, down 4.8% since 2010. For ‘just about managing’ families on average earnings, wages grew by an average of just 0.8% between 2011 and Spring 2020.
Before the pandemic, a household on the average wage would have had to save every penny, for 96 years, to reach the wealth of the top 10%. The economic fallout from the pandemic will doubtless have delivered a hammer blow to whatever prospect of that existed.
All this means that those who entered the crisis struggling have been hit the hardest, while the bank balances of many wealthier families have benefited. An economy that fails to guarantee good health and prosperity for the most vulnerable—whether or not during a global pandemic—is an economy that is fast running out of road.
The big political question this year will be how recovery can take place in a way that’s fair and sustainable. The Shadow Chancellor of the Exchequer Anneliese Dodds spoke recently of her fear that a form of austerity and tax rises will be imposed in the next 12 to 18 months to give the government space to offer fresh tax cuts before the next general election. With tax rises on the cards, politicians are already asking who will pay.
For many, it’s clear that the answer is profitable companies and those with substantial wealth. Our tax system currently focuses too much on taxing consumer spending and income from work, and there’s growing consensus that we need to do a much better job of ending the unfair advantages for the wealthiest in society. Measures to do so would include reforming capital gains tax so that income from wealth is taxed at the same as income from work. This would end the scandal of hedge fund managers paying lower tax rates than nurses.
These ideas were backed by a group of 18 organisations, including Oxfam, Jubilee Debt Campaign, and the Institute for Public Policy Research, all of which joined us last summer in calling for progressive tax reform post-Covid.
Another idea floated toward the end of last year was for a one-off wealth tax for millionaire couples. It’s unlikely this government would introduce such a policy, but the fact that think tanks, academics, and lawyers agreed such an idea is technically possible has made a lot of people sit up and think.
All these proposals show that the government has options beyond slapping a VAT or income tax hike on people who are already struggling to get by.
Increased taxes on wealth are a no-brainer electorally, too, especially in the so-called ‘red wall’, where communities are crying out for better public services and investment after years of economic loss. Tax Justice UK’s polling and focus groups from last year found significant support for taxes on wealth, with 74% of people wanting to see wealth taxed more, including 64% of Conservative voters and 88% of Labour voters.
We found strong Conservative voter support for increases to capital gains tax and corporation tax. Conservative support for higher corporation tax actually leaped from 61% to 74% between our March and June polls last year.
All this makes it clear that it’s time to close the loopholes that allow wealth to be under-taxed. Those with the broadest shoulders must pay their fair share.
The pandemic has put our broken economy into stark relief – but inequality is not inevitable. It’s entrenched as a consequence of long-term political and economic decisions. If the last ten months teach us anything, it’s that we need to raise the bar on what is achievable. We cannot continue with an economic system that fails so many people: tax justice must be at the heart of any recovery package.