In the last few months, the question of wealth has been creeping onto the political agenda. A growing band of unlikely voices – from the IMF and the OECD to, most recently, the former Conservative Cabinet member, David Willetts – have called for an increase to taxes on wealth. Such calls would once have been dismissed as anti-rich and politically impractical; yet, today it appears that we are on the verge of a long overdue debate on the UK’s growing mountain of personal and corporate wealth.
Wealth, and how it’s distributed, matters. High levels of wealth can be used to boost wider social and economic security. Personal wealth can encourage wellbeing. Publicly owned wealth provides the state – and wider society - with a stream of income while helping to offset national liabilities. Yet, little of the surge in wealth levels has been harnessed for the public good. In the last five decades, wealth holdings have grown at twice the pace of incomes. As a result, the UK wealth mountain stands at more than 6 times the size of the economy, up from 3 times in the 1960s. Despite this, younger generations have less wealth at each point in life than earlier generations; private wealth holdings, often unearned, are barely taxed.
Much of this remarkable boost to personal fortunes since the 1970s is down to the application of immense and heavily concentrated financial muscle. A large chunk is simply down to inflating asset prices. Asset inflation may be good news for those sitting on massive wealth piles, but it is bad news for those with little or no wealth.
Wealth begets wealth. With the considerable returns from ownership (in the form of profits, rents and dividends) accruing disproportionately to the already rich, leaving the asset poor even further behind, ever greater wealth concentration is built into the UK model of capitalism. The more wealth booms at the top, the more it undermines the life chances of those left out of the party.
For much of the 20th century there was a general trend towards greater wealth equality. That trend is now set in reverse. Wealth is much more unequally distributed than incomes and the ownership of corporate UK is even more concentrated. Rolling privatisation, continuing with the boost to right-to-buy and the recent sell off of RBS shares, has lead to national wealth being increasingly privately owned. Today, public wealth holdings – from profitable state owned enterprises like the Land Registry and Ordnance Survey to the land and property portfolios owned by local authorities and public institutions like the NHS – account for a little over a tenth of total wealth; a post-war low. The remaining ‘family silver` is insufficient to offset national levels of debt, leaving the UK as one of only a handful of rich countries with a deficit on their public finance balance sheet.
As the IMF, the OECD, Willetts and others are now recognising, tackling these issues requires some big policy shifts. The current wealth mountain offers a huge potential resource for building a better society. But to find a way of dealing with the growing problem of wealth concentration, managing national assets more effectively, and new ways of spreading capital ownership more widely, requires a new public debate. As wealth is hugely undertaxed compared with income, this must include an open dialogue about taxation: the combined revenue from existing capital taxes accounts for little more than one per cent of total economic output.
One of the most progressive and comprehensive routes to getting more social value from existing assets, public, personal and corporate, would be through the creation of citizen’s wealth funds. ‘These are commonly owned investment funds, managed for the long-term, with the returns used explicitly for the benefit of all citizens, future as well as current. Such funds would be transparently managed and kept in trust in perpetuity for the public good. As well as offering a powerful and progressive way of managing part of the national wealth, such funds can play a number of different roles in society: they can store and build public assets and redistribute the gains from economic activity; by more direct linking of revenue and spending, they can help rebuild trust between state and citizen, thus boosting public support for social spending; and by giving all citizens a direct and equal stake in the returns from a growing part of national economic activity, they have the potential to be a powerful pro-equality instrument.
To gain public support, such funds would have to continue to grow over time, and be a permanent and enduring part of the economic and social infrastructure in the UK. They would be owned directly by citizens, not the state, controlled by an independent Board of Guardians, with the support of a citizens’ advisory council.
Holding wealth in common
The idea that a share of national wealth be held in common has a long history. Perhaps the earliest known debate about this principle came in Athens in BC 500 when the discovery of an exceptionally rich seam of silver led to a call for the windfall revenue to be distributed among all 30,000 citizens in a regular and equal cash payment as a citizen’s dividend. It was an idea that would have transformed the way wealth was shared in this Greek civilisation. In the event, the Athenian Assembly voted against the revolutionary idea and instead used the bonus to expand the Athenian navy.
In 1797, the human rights campaigner Thomas Paine argued that the earth should be seen as the ‘common property of the human race’. This idea can be extended to the pool of modern physical, productive and social wealth - ‘gifts of society as well as nature’ – that is essentially inherited from the efforts of previous generations. In the twentieth century, the Nobel Laureate, James Meade, reinforced this idea of legitimate claims on natural and created wealth by calling for a more egalitarian ‘property owning democracy` created by the greater socialisation of private capital (including a portion of corporate profits) with the returns accruing to all citizens.
Perhaps the best known example of the application of these principles is to be seen in the creation of the permanent wealth fund in the US state of Alaska from the diversion of revenue from oil extraction. This fund has paid an equal annual dividend (from $1000- $3500) to all citizens since the early 1980s. Known as the ‘third rail of Alaskan politics`, this audacious social experiment has proved hugely popular and, significantly, has helped ensure that Alaska has the lowest level of inequality of all US States.
The UK could have followed this example when North Sea oil was discovered in the late 1970s. One widely advocated policy at the time was, as the Financial Times put it in 1978, to ‘Give [the revenue] to the people’. The proposal of course never happened. Instead it was spent on current consumption. Today we are ruing this classic example of ‘jam today politics`.
The UK has in fact missed four major opportunities to create a wealth fund; the extraction of North Sea oil (approx. £200bn), the sale of public land (approx. £400bn), the sale of council housing (approx. £100bn) and the privatisation of state owned enterprises (approx. £126bn).
Building a fund of any meaningful size today therefore requires alternative sources of financing. Possible options include the transfer of a range of existing commercial public assets into the fund; occasional one-off taxes (paid in shares) on windfall profits; corporate payments for the use of personal data; and the issue of a long term bond. There is a compelling case that the principal source should be increased taxation on wealth, creating a package which would help make reform of wealth taxation more politically palatable for more people.
One of the most pro-equality approaches would be to establish a citizen’s fund through the dilution of existing corporate ownership, with large companies making a modest annual share issue – say around 0.5% - with the new shares paid into the fund, up to a maximum of 10%. Such an approach would gradually socialise part of the privately owned stock of capital to be used for explicit public benefit. By taking established stakes in companies, such a fund could help align the interests of society and business. A variation on this model was applied in Sweden in the 1980s through the creation of ‘wage-earner funds`, a bold, decade-long social experiment to further develop their model of social democracy, though one that eventually came to an end in the early 1990s.
Creating such a fund does not offer a quick fix but a vision for a much more secure social future, paid for by a higher rate of national saving, and tapping into existing wealth pools. There are of course, various options for spending the revenue from such funds. They could be used, for example, to pay for new areas of critical public spending, including new universal services such as child care and social care for the elderly. Although fundamentally long-term - such funds would take time to establish – a new report Remodelling capitalism – how social wealth funds could transform Britain for Friends Provident Foundation shows that, depending on the level of pay-in, a fund could grow to a level sufficient to boost key areas of social spending, including cash payments, after a decade. Over time, as the size of the fund grew to command a larger share of the economy, annual fund pay-outs could become more generous.
One possibility would be to use the fund to pay, as in Alaska, for an annual citizen’s dividend. Remodelling capitalism examines the impact of a fund paid for through an initial endowment of £100bn (from a mix of a long term bond and the transfer of some existing public commercial assets ) and an annual injection of £50bn from additional taxation, nearly all on corporate and private wealth. While ambitious – and it would be possible to go for lower levels of funding and pay-out - the fund would accumulate for the first decade. It would then have reached sufficient size to provide a modest dividend to everyone and a ‘next generation` grant of £5000 to each citizen at age 25. As it grows it also has the potential to form the foundation of a more comprehensive universal basic income.
Creating a citizen’s wealth fund owned by all has a number of important merits. Firstly, for the first time ever, all citizens would hold a direct and equal stake in economic success, with the fund automatically capturing a growing part of the gains from economic activity and distributing it equally. Secondly, a fund would act as a counterforce to growing inter-generational inequities by slowly transferring a small portion of private wealth, which is disproportionately owned by older generations, into the fund and by being permanent to be shared across future generations. A further strength is that this new economic instrument would help ensure that public assets would be better managed than they have been in the past.
Such funds could also play a key role in the reform of the current economic model. Provided they are managed with transparency and at arms length from the state, they offer a new tool for social democracy and partial reform of corporate capitalism. They represent a 21st century alternative to the top-down statism of old-style nationalisation and the recent fashion for rampant privatisation and uncontrolled markets, offering a new social contract between citizen, state and market.
Of course there will be political hurdles. Despite the vital need to do something about wealth the public have mostly been opposed to higher levels of wealth taxation, from inheritance to capital gains tax, in large part because of the way such ideas have been demonised. . This is personified in the popular names they have been given – who could possibly be for ‘death’ or ‘dementia’ taxes!
Today, there is at last some sign of a shift in the politics of wealth, including growing support for the principle of socially owned social funds. Labour shadow Chancellor John McDonnell called the Friends Provident Foundation proposals ‘a welcome contribution’ as part of a deepening debate ‘around the future financing of our public services, and giving real ownership of assets back to the many, not the few’. Former Conservative minister John Penrose has said: ‘a British Social Wealth Fund isn’t just feasible; it’s essential for capitalism’s future too. A fund would be socially just and generationally fair. And the time is now’. Lord Fox, Liberal Democrat spokesperson for business, welcomed the Friends Provident Foundation proposals because they ‘suggests how a UK fund could be capitalised moving forward, and crucially proposes mechanisms for making it sustainable, ethical and accountable.’
Alongside this political support, think tanks from very different perspectives – from the IPPR and the Royal Society of Arts to the Social Market Foundation - have all called for wealth funds to be created with an interesting diversity of funding and spending options. Even the Times newspaper, not always a friend of such ideas, has dipped its toe into the debate with a recent call to ‘shift taxation from income to wealth`. This may be a small and diverse alliance, but this is a debate that must not be allowed to fade away.
Stewart Lansley and Duncan McCann are co-authors (with Steve Schifferes) of Remodelling capitalism – how social wealth funds could transform Britain , City University/Friends Provident Foundation, May 2018.[book-strip index="1" style="display"]