Page last updated at 02:28 GMT, Sunday, 7 September 2008 03:28 UK

How much should we tax the rich?

By Steve Schifferes
Economics reporter, BBC News

Roman Abramovich
Not all of the UK's rich have their wealth in Great Britain
The rapidly rising incomes of the super-rich are unjust and economically inefficient, according to the TUC.

In a pamphlet published on the eve of its annual conference, the TUC calls for an increased level of taxation for all those earning over £100,000.

In a new report, "Do the Super-rich Matter?," the TUC says that the wealth gap in the UK is as big as in Victorian Britain 100 years ago.

SUPER-RICH IN HISTORY
1879: Duke of Portland - £9.5bn
1899: Duke of Westminster-£10.6bn
1933: Sir John Ellerman: £12bn
1957: James de Rothschild: £0.7bn
2008: Lakshmi Mittal: £27bn*
richest individual at time of death, by decade, in 2008 money.
*estimated current wealth.
Source: Stewart Lansley, Do the Super-rich Matter?

"This surge in wealth has overturned the advances made in a century that saw the gap between rich and poor narrow as a result of progressive taxation, the growth of trade unions, and regulation," say report author Stewart Lansley.

His analysis shows that the richest person in Britain now - steel magnate Lakshmi Mittal - is worth £27bn, almost three times the net worth of the richest individual at the end of the 19th century - the Duke of Westminster, who died in 1899 leaving a fortune worth £10.6bn in today's money.

And in the last two decades, the amount of money needed to be among the UK's 200 wealthiest people has increased from £50m to £400m.

This research is backed up in earlier work by the Institute for Fiscal Studies (IFS), an independent think-tank, which found the incomes of the top 10% have risen faster than those of the population as a whole since Labour came to power in 1997.

And that increase has been particularly concentrated at the very top of the income distribution - among the half a million individuals in the top 1% of the income scale.

Economic benefits?

The pamphlet argues that the big rewards to the rich have not been accompanied by any improvements in Britain's economic performance.

shares of income in Great Britain

Instead, the rich have gained their wealth in the City through the "financialisation" of corporate profits through complex loans - which have now gone sour, it argues.

Indeed, TUC boss Brendan Barber says the rise of the super-rich "is not just socially divisive and morally objectionable, but deeply damaging for the rest of the economy."

The TUC argues that the super-rich have acted "like Robin Hood in reverse", taking a larger share of the economic cake - and pushing up house prices to unsustainable levels as well.

This attack on the rich is not likely to go down well among the Labour leadership, who have staked their reputation on keeping a liberalised economy open to foreign investment, and have attacked the idea that Labour was the party of the politics of envy rather than aspiration.

Practical problems

Chancellor Alistair Darling, who is set to address the TUC conference on Tuesday, is also likely to point out the practical problems of trying to increase taxation of the rich.

The international rich, such as Russian and Middle Eastern magnates, are free to leave the UK at any time if the burden of taxation is seen as too high.

Indeed, both Labour and Conservatives have agreed that the only practical way to tax this group is to levy a "flat tax" of £35,000 as a charge for keeping their non-domiciled status, which protects their foreign assets from UK taxation.

This is expected to raise anything from £200m to £2bn, depending on how the super-rich react, give that there are 100,000 non-doms in the UK.

City rewards

For those who work in the financial district, the City of London, it would be an odd time to try to tax their bonuses - as these are rapidly disappearing in the credit crunch, along with an estimated 40,000 jobs.

And while many observers agree that the City culture of unchecked financial wizardry for short-term gains may have contributed to the credit crunch, it is the business sector itself, rather than the government, that would have the best chance of changing this.

As long as risky short-term investments are rewarded more highly, such problems are likely to recur.

Changing the incentive structure would require rewarding executives less through share options and bonuses, and valuing long-term management skills and stability.

In the new climate, this may already be occurring - although it is noticeable that so far, three chief executives of major US banks lost their jobs (Citigroup, Merrill Lynch, and Bear Stearns), while no UK banking bosses have.

It will be interesting to see whether the TUC campaign chimes with public opinion.

Recent polls suggest that while the vast majority of the public agrees that the gap between rich and poor in Britain is too big, there is far less agreement on whether the government should tackle this issue.


SEE ALSO
Wealth of UK richest 'rises 20%'
28 Apr 07 |  Business

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