Taxing the rich in Britain

 

A famous quote attributed to F. Scott Fitzgerald about the wealthy is: "Let me tell you about the very rich. They are different from you and me." Ernest Hemingway is said to have retorted, "Yes, they have more money".

 So, how much money do the wealthy currently have in Britain. This question has become a more sensitive one after more than a decade of stagnant living standards for most.

 The guardian reports that “A modest wealth tax aimed at the ultra-rich, for example those with assets over £10m, could generate significant funds. One study suggests a global levy on the top 0.5% could raise about $2.1tn – roughly 7% of national budgets – with the UK alone bringing in around $31bn a year. That revenue could be transformative if used to fund the NHS, education, affordable housing, climate resilience, and long-term care.”

 In this blog I am going to use three sources of data to show how many are rich and just how rich they are and if taxing them is the solution to Britain’s tax problems. The first is data from Forbes on how many billionaires there are in the world. The second is ONS data on aggregate household total wealth. The third is data from the World Inequality Dataset (WID) which is a global comparative dataset organised by Facundo Alvaredo, Anthony B. Atkinson, Thomas Piketty, Emmanuel Saez, and Gabriel Zucmaninitially.

As the most recent data from the ONS, which gives us a breakdown of wealth across the population of Great Britain, is for 2022 I am going to use data for 2022 from the Forbes list of billionaires and also data from WID for 2022. Forbes shows that in 2022 there were 88 billionaires in the United Kingdom whose wealth ranged from $US 32.5 billion to $US1 billion. The average wealth for these billionaires was $US4.5 billion and the median value was US$2.6 billion. The median value is the one for which half those in the data are above the value and half are below Their total wealth was $US 400.1 billion. In 2020 the US$ to pound exchange rate was 1.5, so in pounds these numbers translate to a range of wealth from £21.6 billion to £0.6 billion and a total wealth of £266.7 billion. Figure 1 shows the distribution of this wealth across percentiles. 

Figure 1

 

In order to compare these very rich individuals with the other wealthy people in the UK we need to use the ONS data. The ONS provide us with total household wealth by decile, ie from the poorest 10 per cent to the riches 10 per cent. These are total numbers. To obtain an estimate of the wealth per individual adult, to compare with our Forbes numbers, we need to make assumptions about numbers of households and number of adults in a household and this I do in Table 1. So, in Table 1 the first column, from the ONS, is for aggregate total wealth in millions of pounds divided between the poorest decile with total wealth of £13, 897 million to the richest decile with total wealth of £5,523,204 million and total wealth, across all deciles of £13,567,890 million. Such large numbers are hard to understand so the Table provides estimates of wealth per household in column (3) and wealth per adult in columns (6).

 The differences across deciles are dramatic, the poorest decile have £4,165 per adult and the richest decile has £1,655,289 per adult, a scarcely credible nearly 400 times difference. It is these differences that are often cited with the implicit implication that here is a large potential tax basis for a wealth tax.

 Table 1 ONS Data 

Before we try and assess how much a wealth tax could raise, we need to investigate how wealth is divided up within the top 10 per cent. Notice from the ONS data in Table 1 while the average wealth per adult is estimated to be £1.7 million, which is vastly greater than the rest, it is far from the billions we read from the Forbes data. It is also far from the £10 million level suggested as the basis for a wealth tax in the Guardian report cited at the beginning of this blog.

 In Table 2 I use the WID data to investigate how incomes are divided up within the top 10 per cent. The WID data provides us not only with the average wealth but also the threshold level (ie how much wealth you need to enter the relevant percentile) and also the share of wealth held by the top shares of wealth.

 From the Table we see not only the inequality of wealth but how it is distributed within the top 10 per cent. The WID data show that to enter the 10 per cent of wealth holder you need £ 613,000 and that the share of the top 10 per cent is 57.1 per cent. This is higher than that implied by the data in Table 1. The WID data also how much wealth varies within the top 10 per cent. We see from Table 2 that the average wealth of the top 1 per cent is £5.61 million, that of the top 0.1 per cent £17.84 million. Table 2 also shows the average wealth for the top 0.007 per cent which at £111.9 million is some 74 times the average.

Figure 2 presents the distribution of wealth within the top 10 per cent in a similar way to how we presented that for billionaires in Figure 1. While the numbers are very different the pattern is the same, with the very richest far richer than most.

Figure 2

So, next back to our wealth tax. Taking the top 0.1 per cent as the “rich” who will be taxed we have 28,300 households with average wealth of £17.84 million so a tax base of £504,872 million. A 1 per cent tax would raise £5,048 million. In 2023/24, UK government raised around £1,099 billion (£1.1 trillion) in receipts – income from taxes and other sources. So, 1 per cent tax on the top 0.1 per cent would raise a tiny fraction of current total revenues.

The problem this analysis highlights is that while there are indeed very rich individuals, they are too few to provide a feasible basis for raising substantial tax revenue. Finally, you might ask where are the billionaires in Figure 2. Even the richest individuals in the WID data have an average wealth of about 70 million, far from the billionaires shown in Figure 1. The billionaires would only in Figure 2 if we could extend the data even further up the wealth distribution. They are too few to appear. This simply emphasises our essential point. There are not enough of the wealthy to provide a good basis for taxation.