Wealth Taxes - Sarwar’s solution is also wrong

Anas Sarwar has backed away from support for a devolved Scottish wealth tax (following similar backpedalling from Keir Starmer down south) saying that while the “problem” of excessive wealth inequality is a real one, the “solution” of a wealth tax on all assets above a certain amount won’t work. Unfortunately, his solution – to do nothing – won’t work either.

Tax reform campaign group Tax Justice UK has proposed a 2% annual tax on assets held above £10 million, saying that it would raise £24 billion each year.

Sarwar instead favours “progressive taxation” – praising the UK party’s approach to income taxes, but with no commitment – and a history of opposing – an increase in devolved income tax for the highest earners in Scotland. Such an income tax would not, of course, tax wealth already accumulated by the wealthy.

However, while there is a lot to say in support of a wealth tax of some description, analysts like Richard Murphy have pointed out that as far as a UK wealth tax goes, much of the wealth that could be targeted is held in very mobile assets like stocks and shares, and loopholes like putting personal wealth behind the shield of trusts and other “tax efficient vehicles” would make it difficult to identify, let alone value and then tax, those assets. He instead proposes stronger Capital Gains and Inheritance taxes to tax the transfer of wealth.

At a devolved Scottish level, the problem is compounded by the fact that the lack of things like a Scottish stock exchange, high levels of foreign company ownership, and the fact that the UK is one of the most regionally unequal states in the developed world means that Scotland’s own wealthy elite tend to not store their mobile wealth within Scotland. Scotland’s wealth is, by and large, concentrated in two forms of asset – property and land. And those who own such assets often do not live in Scotland at all.

Scotland’s wealthy not owning Scottish assets and Scotland’s wealth not being owned by people in Scotland seems like an intractable problem for a wealth tax but, in fact, it actually greatly simplifies the solution as far as the Scottish Government should be concerned.

Common Weal has proposed a reform of Council Tax to move it away from its extremely regressive form based on the notional value of what house prices were more than thirty years ago to a Property Tax based on a percentage of the present value of homes. This would allow Scottish Local Authorities to maintain their current revenue levels while granting a tax cut to around 80% of households and placing a much fairer tax burden on the very wealthiest – both large home owners and those who own multiple properties – who have benefited too much from the current tax system.

This Property Tax could then be extended to cover land – we’ve calculated that a Scottish Land Tax set at the same rate as the Property Tax on houses would raise around £450 million in extra revenue for Local Authorities each year.

The important thing to note is that land and property are forms of wealth that can’t be moved out of Scotland and even if the billionaires and hedge funds who own half of our land move out of the country, move their ownership behind company tax firewalls, or have already done either of those things then the tax is still due on the land owned so cannot be easily avoided.

A devolved Scottish wealth tax doesn’t solve the UK’s problem of being one of the most regionally unequal countries in the world and won’t distribute the wealth being hoarded in London more fairly and to where it can be more effectively used for the benefit of all, but while the UK Labour party refuses to solve that problem at all, Scotland can and should do what we can to solve excessive wealth hoarding here.

Anas Sarwar is correct to be concerned about the problem of excessive wealth ownership but he is wrong to dismiss responsibility for that problem, especially when the real and viable solutions have already been presented, are within reach of the Scottish Parliament, and already have substantial support even within his own party.