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Introduction

Wealth inequality has been very high in Britain for several decades: the richest 10% own over half of the nation's wealth, while the poorest 10% have negative wealth (debt). In recent years, soaring asset prices have led to the absolute wealth gap between these two groups increasing in size by 48%, rising from £7.5 trillion to £11 trillion. The average person in the top 10% has £1.7m in wealth; the average person in the bottom 10% is £2,000 in debt (Jeffrey and Snell, 2024).

Wealth inequality is not only morally wrong; it is damaging social cohesion and public faith in democracy, and is undermining economic growth.

The impacts of wealth inequality on growth are under-appreciated, but the evidence base is growing. We identify five ways in which wealth inequality undermines economic growth:

• Reducing demand. Just as malnutrition starves the body of energy, the concentration of wealth in few hands reduces consumer spending power, increases poverty, and drives up household debt, weakening demand and stalling growth.
• Wasting talent. Like cholesterol that clogs up the body’s arteries, inequality is a barrier to good grades and good jobs for millions of people, blocking the flow of talent and ideas, and so damaging innovation and productivity in our economy.
• Extracting wealth. Just as parasitic infections siphon nutrients from the body, some companies and individuals control huge assets and charge others ‘rents’ to use them, extracting wealth at the expense of genuine wealth creation.
• Skewing investment. Like poor blood circulation that deprives key organs of oxygen, when too much investment flows to one sector (such as real estate) at the expense of more productive sectors, genuine wealth creation and economic growth suffers.
• Undermining competition. Just as a weakened immune system leaves the body vulnerable to disease, wealth inequality increases market concentration. Oligopolies reduce competition, increase prices, and suppress innovation and growth.

Ahead of the November 2025 budget, there is increasing pressure on the Chancellor to raise revenues by increasing taxes on wealth. A wide variety of policy proposals have been made, including equalising rates of capital gains tax with income tax, widening the scope of national insurance to include income from property rent and partnership income, reforming property taxes, introducing a wealth tax, and improving compliance by wealthy taxpayers.

All of these reforms have the potential to raise substantial sums. But, if designed and implemented well, they can have two other significant benefits. The first is in improving the fairness both of the tax system itself and of our society and economy as a whole, in particular by helping to reduce the underlying level of wealth inequality and some of its negative spillover impacts. The second is in helping to create the conditions for stronger economic growth, both by reducing unhelpful distortions in the tax system and by mitigating some of the negative impacts of wealth inequality on growth. There is a golden opportunity for the Chancellor to achieve a win-win-win in the short term. This should be the first stage of a process that takes a harder look at reforming the tax system as a whole, so that it can be made fairer and more effective in the long term.

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How wealth inequality harms our society and democracy

Philosophers and political theorists have identified a wide range of normative considerations in relation to which high levels of wealth inequality can be viewed as worrying or harmful within democratic societies. Often these different kinds of reasons will have both areas of overlap, as one kind of consideration shades into another. There will also in many cases be mutually reinforcing, as in cases (for example) where wealth inequality allows citizens with greater resources to influence political outcomes so as to favour policies which, in turn, allow the wealthy to exercise more power in the economic sphere as well (think here for example of the role of political lobbying to carve out tax loopholes, or to reduce protections for workers). Moreover, many critics of wealth inequality may want to emphasise the significance of a number of these distinct but overlapping lines of normative concern, and so the overall normative case in favour of reducing wealth inequality (whether through the tax system or through other policy mechanisms) will often draw on a range of these different kinds of reasons.

Nevertheless, for the sake of conceptual clarity, it will be worthwhile to present some of these different reasons for addressing wealth inequality in turn, to give a clear sense of the range of considerations that are in play when we consider both the general case for reducing wealth inequality and the more specific case for introducing various taxes on wealth.

Equality of opportunity

One strong set of reasons for reducing wealth inequality relate to the ways in which wealth inequality can undermine equality of opportunity, especially when its effects over generations are taken seriously. Those who enjoy a large share of wealth are able to buy greater advantages for their descendants, whether through mechanisms such as private schooling or supporting their children through unpaid internships, or simply through the straightforward intergenerational transmission of housing and other forms of wealth that can transform the possibilities open to the beneficiaries of those transfers.

The idea of equality of opportunity has a widespread purchase across the ideological spectrum, with most people supporting the idea that people’s economic prospects should depend centrally on their own talent, effort and hard work, rather than being transmitted to them simply by the good fortune of having successful parents. High levels of wealth inequality undermine the conditions for this kind of equality of opportunity, instead creating outcomes where economic advantages track down through families across the generations. This is another aspect of wealth inequality that troubled John Rawls, who advocated high levels of taxation of inheritance and other forms of wealth transfer, precisely as a precondition for ensuring ‘fair equality of opportunity’ across the generations (Rawls 1999, 2001).

Social status

A more direct objection to high levels of wealth inequality is that, when such inequalities go beyond a certain level, they begin to undermine the possibility of egalitarian social relations (O’Neill 2008). Access to very different levels of wealth puts people into very different kinds of social worlds, creates alienating social distance between people, and drives stigmatising differences in social status. These kinds of concerns about wealth inequality have been examined by both political philosophers and empirical social scientists. Among philosophers, T. M. Scanlon has written about the “humiliating differences in status” (Scanlon 2018, Ci 2013) that are associated with high levels of wealth inequality. Meanwhile, The Inner Level by Richard Wilkinson and Kate Pickett (Wilkinson and Pickett 2018) examines the sociological and psychological mechanisms through which the experience of economic inequality undermines the self-esteem of the disadvantaged, creating socially dangerous forms of ‘status anxiety’ that exist in especially pathological forms in societies marked by high levels of wealth inequality.

This aspect of the harmfulness of inequality is also emphasised in the work of Rawls, who talked of the centrality of the provision of the “social bases of self-respect” for all citizens, within any social system that could be justifiable to all of its participants. Where wealth inequality segregates citizens into separate social spheres, there is a pervasive danger to undermining the equality of status that is a social precondition for citizens’ self-respect as full members of society. As Rawls puts it, this “brings us closer to what is wrong with inequality in itself. Significant political and economic inequalities are often associated with inequalities of social status that encourage those of lower status to be viewed both by themselves and others as inferior. This may arouse widespread attitudes of deference and servility on one side and a will to dominate and arrogance on the other.” (Rawls 2001, p131) The empirical work undertaken by Wilkinson and Pickett provides plentiful evidence for the ways in which exactly this cluster of pathological status harms emerge and develop within societies that tolerate high levels of wealth inequality.

Democracy

One concern is that high levels of wealth inequality create a situation where wealthier citizens can convert their greater economic resources into greater political power, in a way that undermines the fairness of democratic procedures. For example, the wealthy will be able to devote more resources to funding campaigns that promote their own political agendas. Moreover, the media will often be aligned to the interests of those with more wealth, given both patterns of media ownership and the need to serve the interests of advertisers (on inequality and the media, see Kurtulmuş and Kandiyali 2023).

John Rawls emphasises this concern in his own critique of the kinds of inequality that can develop in capitalist societies, worrying about the ways in which capitalist societies allow economic power to be converted into political power, which would create a situation where “control of the economy and of much political life rests in few hands” (Rawls 2001, p138; O’Neill 2012). In Rawls’s view, the idea that there should be ‘fair value of political liberties’ requires that citizens should have roughly equal prospects of influencing political outcomes; the concern is that, where significant wealth inequality leads to inequality of political power, this requirement is violated. T. M. Scanlon (2018) also discusses the significance of empirical findings by political scientists such as Achen and Bartels (2016) and Gilens (2012) that show that political outcomes in democratic societies typically track the preferences of the richest sections of society, rather than being representative of the views of less affluent citizens. The democratic argument for limiting wealth inequality is also central to the work of theorists such as Ingrid Robeyns (2019, 2024) and Thomas Christiano (2008), the latter of whom emphasises the variety of ways in which the wealthy are both more able and more likely to translate their (unequal share of) money into an unequal share of political power.

Power

Beyond its direct threat to democracy, its way of undermining fair competition and equality of opportunity, and its attendant status harms, high levels of wealth inequality are also subject to criticism for the way in which inequality in economic resources is typically accompanied by inequalities of power. In political philosophy, the ‘republican’ view of freedom (Pettit 1997, Skinner 1997) sees freedom as consisting in the absence of domination, where domination is understood as subjection to arbitrary power. In societies marked by high levels of wealth inequality, those with control over disproportionate shares of resources are generally able to convert those resources into disproportionate shares of social power. Republican theorists therefore advance a critique of wealth inequality in terms of the way in which it leads to arbitrary power inequalities, and thereby created relationships of social domination (White 2011, 2025).

To make this idea less abstract, consider a concrete example: the relationship between landlords and renters in the private housing market. An existing inequality of wealth creates a social system where those who own property are able to exert a high degree of unilateral power over the lives of those who need to rent somewhere to live. Individuals need to access housing in order to develop and live out their life plans, but their access to this essential social good is conditioned by the preferences of those wealthy individuals who own rental properties, and who can decide, as and when they like, to refuse to renew tenancies, or to hike rents. While the worry about wealth inequality as a facilitator of domination is central to the thinking of republican theorists such as Stuart White, these concerns about wealth inequality creating relations of domination are also present in the thinking of liberal egalitarians such as Rawls and Scanlon. Rawls talks about the reason we have for “controlling economic and social inequalities […] to prevent one part of society from dominating the rest” (Rawls 2001, pp130-1), while Scanlon worries about the ways in which economic inequalities can make the lives of the disadvantaged subject to the will of the wealthy, thereby creating objectionable relationships of unilateral control. This consideration is closely related to worries about the impacts on democracy of political power and control by the wealthy, but reminds us that worries about the concentration of power apply not only with regard to the exercise of political power through our (purportedly) democratic institutions, but also with regard to the exercise of private economic power.

Faith in government and politics

The dominance of private wealth and the absence of public wealth undermine public faith in the ability of the democratic state, and the willingness of democratically elected politicians, to govern in their interests. In societies such as ours, it is easy to become disillusioned or even despairing when we consider the sense that democratic politics is powerless in the face of private interests and the preferences of the wealthy. The confident and clear-headed pursuit of policies that look to reduce wealth inequality, whether through wealth taxes or other mechanisms, hold up the promise of an affirmation of the power of the democratic public realm against the power of the private wealth (Zucman and Saez 2019, 2020).

Intergenerational inequality

The increase in wealth inequality also manifests itself in increased inequalities in wealth between generations (Sturrock 2023). The distribution of wealth skews heavily in favour of older citizens. The intergenerational age gap has widened significantly in recent years; the difference in typical wealth between people in their early 30s and people in their early 60s reached £310,000 in 2020-22, more than doubling since 2006-08 (Broome and Kanabar 2025). As outlined above, one consequence of this imbalance is that the distribution of economic power, and the consequent political choices made when competing interests are traded off against each other, is too heavily weighted towards the interests of older generations, at the expense of the interests of younger generations. As a result, wealth (including property wealth) is undertaxed, creating a feedback loop that further widens intergenerational inequalities in the distribution of wealth. Our failure to tax wealth sufficiently thereby reinforces the generational skew in economic power within the economy (Bidadanure 2021).

Racial, gender and regional inequalities

Wealth inequality also translates into inequalities in economic power at the expense of both minority racial groups and women, exacerbating existing racial and gender inequalities. Just as the existing wealth distribution is skewed towards older citizens, so too it is skewed towards men rather than women, and towards citizens who are in the majority racial group rather than those from minority groups. A typical person from a Bangladeshi, black Caribbean or black African background has no significant wealth, in contrast to the typical white Briton who has a household net worth of £140,000, while women on average have more than £100,000 less wealth than men, with an even larger divide among older age groups (Jeffrey and Snell 2024).

Likewise, the existing wealth distribution skews heavily in terms of the most affluent parts of the country (Parkes and Johns 2024). In the UK, this means that London and the South East enjoy a per capita wealth level well beyond that in other parts of the country. As a result, wealth inequality entrenches longstanding regional divides in England; the North of England is home to 30% of the population but only 20% of its wealth (Jeffrey and Snell 2024). Again, a failure to redistribute wealth is exacerbating existing patterns of inequality, in this case the deep-seated inequalities between different regions of the UK.

Given these features of the wealth distribution, policies that reduce wealth inequality can be an important way to address some of the deepest inequalities, including those of race, gender and region, within our society.

Access to assets

Another way of making the case for reducing wealth inequality is to start at the opposite end of the wealth distribution, considering not so much the harms that are created by large agglomerations of wealth, but the potential benefits that individuals can enjoy when they move from having very low or zero holdings of wealth to being able to enjoy moderate amounts of wealth. Access to stores of wealth can be of enormous benefit to individuals as they plan their lives over time: wealth gives a buffer during periods of transition, when regular income may be lower; and wealth creates opportunities as when individuals are able to use their access to moderate holdings of wealth in order to allow them to access forward-looking activities: for example, as when someone uses their financial resources as seed capital for a new business, or as a down payment on a mortgage. In freeing individuals from the pressures of week-to-week or month-to-month subsistence, and in giving individuals the preconditions for taking on longer-run plans, access to wealth allows people a more secure and confident exercise of their individual freedom and agency, extended across time. By contrast, not owning assets (or being in debt) has demonstrably negative impacts on wages, mental and physical health, and civic participation (Jeffrey 2025).

This kind of thinking – about the ways in which access to moderate amounts of wealth can have a liberating effect on individuals’ agency, freedom and life chances – has stood behind the justification of approaches to ‘asset-based’ policies such as the Child Trust Fund and other policies of ‘universal inheritance’ (Paxton and White 2006). But if moderate amounts of wealth are to be made available to those who previously did not benefit from having even such modest wealth holdings, then policy mechanisms need to be found to build up the assets of the less advantaged members of society. Clearly, redistributive mechanisms that reallocate claims over wealth from the rich towards others are one clear way in which this goal can be achieved. Even on straightforward utilitarian grounds, and given plausible assumptions about the diminishing marginal utility of greater holdings of wealth (such that additional holdings of wealth bring most benefit to those starting out with least), such policies of wealth redistribution are easily justifiable. Political theorists such as Stuart White defend such wealth transfers on republican grounds, as a way of avoiding a society marked by forms of social domination; while liberal egalitarians such as Rawls defend such wealth transfers as a way “to put all citizens in a position to manage their own affairs on a footing of a suitable degree of social and economic equality” (Rawls 2001, p139). Indeed, Rawls’s endorsement of a ‘property-owning democracy’ (Rawls 2001, O’Neill 2012) is precisely the idea of creating a society in which all citizens are able to enjoy the benefits of (moderate) wealth ownership, and where this is achieved by restricting and redistributing holdings of wealth at the top end of the distribution.

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How wealth inequality distorts our economy

We have already touched upon the ways in which reducing large private concentrations of wealth can be a precondition for building up a broader and more equitable distribution of private wealth among citizens. But a parallel argument can also be made that reducing private concentrations of wealth is also a precondition for building back the distribution of public wealth. Research by Thomas Piketty and his colleagues (Chancel et al 2022) has shown a precipitous decline in holdings of collective, public wealth within affluent industrial societies over the past forty years or so, with a steep acceleration in this loss of collective wealth coinciding with the effects of the Covid-19 pandemic. This phenomenon has different aspects, including the rise in public debt during this period, and the loss of collective resources due to the effects of programmes of privatization undertaken since the 1980s.

Across the range of mechanisms by which public wealth has reduced over this period, the result of these processes has been in effect a transfer of resources from the public to the private. This has meant that governments have had to do more and more both to service public debt, and to meet the terms of various kinds of private finance commitments. A loss of public wealth increases governments’ vulnerabilities with regard to having to pay streams of revenue to the private sector in order to provide basic public services. Consider for example the contrast between a government that is able to house vulnerable families in public housing, as opposed to the government that can only provide services to the needy through paying or subsidizing ongoing rent payments to private accommodation providers and private landlords. The effects of the transfer of wealth from the public to the private has been an ongoing theme emphasised by the Patriotic Millionaires, and especially in the messaging of Gary Stevenson, who talks about the way in which an impoverished public sector leads to a combination of low quality public services co-existing at the same time as high levels of tax on working people. A significant transfer of wealth away from the top end of the distribution of private wealth holders would allow the reversal in the decline of public wealth, thereby increasing the capacities and reducing the vulnerabilities of the public sector.

Income inequality

It is a striking feature of the economies of the most advanced and prosperous nations over the past forty years or so that there has in general been a shift in the composition of national income, with the ‘labour share’ - i.e. the proportion of annual national income going in wages - in relative decline when compared to the ‘capital share’ - i.e. the proportion of annual national income coming in the form of profit, interest, or rent on wealth holdings (Manyika et al 2019, Agiomirgiankis & Grydaki 2025, OECD 2015). As Thomas Piketty and his colleagues have shown, this phenomenon is only to be expected in an economy where the accumulation of capital as a multiple of annual income has been increasing over time. In such economies, the income distribution comes to be aligned more closely with the underlying distribution of claims over wealth (Piketty 2014, O’Neill 2017). Given that it is a general feature of all advanced economies that the level of wealth inequality is higher than the level of income inequality, a structural economic shift of this kind that aligns the income distribution more closely with the wealth distribution is one that will drive up levels of income inequality.

Where these empirical conditions obtain, even if one takes oneself to have reason only to care about the ongoing levels of income inequality, one thereby also gains an instrumental reason to care about the wealth distribution as well. In a world where a larger share of income is associated with capital returns rather than wages from employment, there is a pressing reason to address the pattern of ownership of wealth and capital as a way of addressing income inequality (Furendal and O’Neill 2024). Now the reasons one might have for addressing income inequality could parallel the kinds of reasons mentioned above for also needing to address levels of wealth inequality, but the point to be made here is simply that if one accepts any set of reasons for addressing income inequality, one thereby also has reason to address the underlying wealth distribution, especially in a world where returns to capital are growing at the expense of returns to labour.

The behaviour of the wealthy

High levels of wealth inequality, combined with the under-taxation of wealth, incentivise wealthy people to behave in ways that are more likely to drive-up levels of economic inequality in the first place. Corporate ‘supermanagers’ operating in jurisdictions where they face low marginal levels of taxation are incentivised to focus on bidding up their levels of pay, as opposed to simply enjoying the power and prestige of their positions. The opposite is also true; as Piketty, Saez and Stantcheva (2014) have shown with regard to taxation of top incomes, high levels of marginal taxation at the top end of the distribution change behaviour in interesting ways. Hence high levels of taxation at the top end of the distribution can have effects on pre-tax income levels rather than merely being a mechanism for post-tax redistribution, with the less rapacious behaviour of senior managers then allowing more resources to flow instead either to the benefit of their firms’ consumers or other its employees (or both) (Piketty 2014, Segal 2014). It is therefore important to bear in mind that some of the behavioural responses associated with increasing income taxes at the top end of the distribution, far from being unwelcome, can instead be seen as valuable ‘predistributive’ consequences of tax policy (O’Neill 2020).

Similarly, in the space of forms of wealth taxation, we can consider the ways in which low levels of inheritance taxation, for example, disincentivise the owners of large estates from dividing those estates more broadly across a range of recipients, thus exacerbating pre-tax levels of inequality. Higher taxes on inherited wealth might, by contrast, make the hoarding of wealth seem like a less attractive prospect. The behavioural changes that could be generated by more progressive forms of wealth and inheritance taxation have been at the forefront of thinking about these issues for many years, as in the justification of James Meade’s proposals to switch from a ‘donor-oriented’ to a ‘recipient-oriented’ approach to inheritance taxation (Meade 1978, O’Neill 2007).

Reciprocity

Wealth inequality undermines reciprocity, and undermines people’s ability to contribute to society and to our economy. Our shared social and economic structures generate a system of social cooperation that allow each of us to flourish and advance our own interests in a way that would be simply impossible in the absence of these structures of social cooperation. Those with the largest holdings of wealth can be seen as those who have benefitted most from this system, given their larger personal share of the overall social wealth that has been produced by sustained cooperation. The simple idea of acknowledging that benefit, and of being obliged to do one’s part to help to sustain the system that made those benefits possible, suggests that those who have benefitted the most from social cooperation should also be those who contribute most to sustaining the structures and institutions that make that cooperation possible (White 2003, Satz and White 2024). That intuitively simple and straightforward idea takes us very quickly to the idea that progressive wealth taxes are a plausible starting point when we think about the legitimate fiscal structure embodied in a just set of economic institutions.

Property rights

Wealth inequality feeds a misleading and limiting conception of property rights. Market outcomes, including the accumulations of wealth that market activity make possible, are not some kind of morally privileged ‘baseline’ from which departures are nearly impossible to justify. Rather, rights over wealth are in large part a product of the changeable and malleable rules of the economic system itself, and are subject to adjustment in accordance with our democratic decision-making. Liam Murphy and Thomas Nagel, in their important book The Myth of Ownership: Taxes and Justice, talk about the need to get beyond the kind of ‘everyday libertarianism’ that grants too much normative significance to status quo market outcomes (Murphy and Nagel 2002; see also O’Neill and Orr, 2018). In a similar vein, Thomas Piketty in Capital and Ideology talks about the need to shift to a ‘desacralized’ conception of property, where we relax the ‘sacral’ status that existing claims over wealth might seem to have taken on within our political culture, in favour of a ‘circulatory’ understanding of wealth and property. Like the blood supply of a healthy human being, the wealth of a society serves its function when it circulates through that society over time, energising and being put to use by the system, rather than pathologically pooling in one place (Piketty 2020; see also O’Neill 2021).

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How wealth inequality undermines growth

We now turn to look at the reasons why high wealth inequality has an adverse impact on economic growth and prosperity. There are several different theoretical channels through which wealth inequality can undermine growth. Many of these are ‘feedback’ mechanisms whereby reductions in growth can drive increases in wealth inequalities, which in turn further reduce growth.

Financialisation and wealth extraction

There has been a substantial increase in assets relative to the size of the UK economy’s annual output. In 1987, total financial assets (currency and deposits, debt securities, loans, equities and investment fund shares and insurance and pensions) were around 660% of GDP; by 2022 they had increased to around 1500% of GDP. Nonfinancial assets – land, dwellings and other buildings and structures, machinery and equipment, intellectual property and inventories – increased from 320% of GDP in 1995 to around 515% by 2022. Hence the total value of assets as a percentage of GDP – most of which is the household sector – increased from around 11 times GDP in the mid 1990s to around 20 times GDP in the early 2020s. Meanwhile, the trend rate of output growth in the UK economy has slowed: the average growth rate of GDP per head of the population for the UK fell from 2.4% per year in the 1980s to 1.3% per year in the 2010s and (so far) just 0.2% per year in the 2020s (ONS 2024, Democracy Collaborative forthcoming).

The increase in assets relative to the size of annual GDP is part of a process of increased ‘financialisation’ of the UK economy, as documented by Hudson, Bezemer and Reed (2025). A large proportion of the recent growth in wealth is not the accumulation of saved incomes, but capital gains spurred by debt growth.

Christophers (2023) argues that the UK economy has not only been financialised, it has been rentierised. Since the early 1980s there has been a broad-based shift towards economic activities conducted by ‘rentiers’ in the sense that they are structured around the control of, and generation of income (‘rents’) from scarce assets. The latter include financial assets, the expanded creation and circulation of which has been integral to financialisation. The ‘FIRE’ sector of the UK economy (Finance, Insurance and Real Estate) expanded from 15% of UK Gross Value Added in the early 1970s to 35% in the early 2020s (OECD 2024, Democracy Collaborative forthcoming).

As Stewart Lansley (2025) has argued, a financialised economy more focused on wealth extraction than wealth creation leads to much higher levels of financial engineering and speculation at the expense of investment in productive enterprise. This tends to reduce innovation, dynamism, productivity and growth. Lansley argues that a progressive economic strategy needs to distinguish between ‘good’ and ‘bad’ accumulation. ‘Good’ accumulation creates new value through an expansion of the real natural resource pool, with at least part of the gains shared more widely across society. ‘Bad’ accumulation is associated with appropriation, and with non-productive or low social value activity. It involves the upward transfer of existing wealth, leading to a smaller pool of socially available assets. Examples of bad accumulation include the mass privatisation of former public assets from the 1980s onwards, which has resulted in a ‘privatisation premium’, whereby many former state-owned services have become more expensive as revenue is siphoned off to shareholders (Common Wealth 2025). Over the last 25 years, the private sector has also witnessed an aggressive shift towards the extractive economy, fuelled by a boom in the private takeover of public companies since the millennium, such as AA, Boots, Morrisons, ICI, GEC, BHS and Debenhams. This shift in the structure of private company ownership has enriched a generation of private equity barons, often at the expense of the survival of the targeted companies themselves.

Oligarchy and crony capitalism

In recent decades, corporate strategies in the UK have become increasingly anti-competitive, with key markets from energy supply and food production to housebuilding and banking controlled by a handful of ‘too big to fail’ firms. Analysis by the Resolution Foundation (Bell and Tomlinson 2018) found that between 2003-04 and 2015-16, Britain’s 100 biggest firms increased their share of total revenue across British businesses from 18% to 23%. Wealth concentration seems to go hand-in-hand with a lack of competition in markets, leading to oligopoly.

Economic inequality can impede growth through ‘rent-seeking’ activities and power concentration among the affluent, a common issue in highly unequal societies. As wealth distribution skews towards the wealthy, they tend to use their financial leverage to sway governmental policies in their favour, engaging in rent-seeking behaviours that diminish economic efficiency and growth (Murphy et al 1993). This concentration of power can result in resource misallocation, and stifle innovation and investment by creating barriers to entry and reducing competition.

It was to address this power concentration that the Institute for Fiscal Studies recommended an annual tax on the stock of wealth in its first comprehensive review of the UK tax system chaired by James Meade (Meade 1978). Meade argued that “wealth gives opportunity, security, social power, influence and independence. For this reason it may be argued that, however well a system of taxation of income or of consumption may be devised, equity requires that wealth itself should be included in the base for progressive taxation”.

Reduced investment

Schroeder (2023) argues that wealth plays three crucial roles in boosting productivity through individual education and entrepreneurship. First, wealth enables investment in skills through education and training. Second, wealth acts as a safety net – a buffer against economic shocks. Third, wealth supports risk-taking by enabling individuals to undertake long-term, higher risk projects that may not offer immediate returns but have high potential future payoffs. In this framework, wealth inequality can depress education and training activity and entrepreneurial activity (e.g. business start-ups) in three ways. First, it leads to unequal opportunities for education and training, which can exacerbate wealth and income gaps. Secondly, it creates poverty traps - low-wealth individuals face barriers to skill development, making it hard to catch up with wealthier peers. Finally, economic shocks - events like the Covid-19 pandemic - disrupt human capital accumulation, with long-term consequences.

Wealth inequality hampers growth by limiting educational opportunities for low-income families, thus decreasing the overall accumulation of human capital in the economy. Even though loans are available for tuition fees and living costs, young adults from low-income backgrounds may be less inclined to put themselves into high levels of debt to attend university.

Additionally, increased wealth inequality can adversely affect research and development spending, as individuals with limited wealth find it challenging to finance innovative projects. Reducing economic inequality can expand market size by making innovative goods available for more people, thus increasing returns to innovation (Murphy et al 1989).

Reduced demand

When inequality is high, income tends to accumulate disproportionately among the wealthiest, diminishing the spending power of the majority, who are less affluent. This skewed wealth distribution results in reduced aggregate demand, because lower and middle-class households, which have a higher marginal propensity to consume than wealthier households, have less disposable income (Krugman 2009, Stiglitz 2012).

Misallocation of resources

There is a strong argument that high wealth inequality leads to misallocation of resources across activities, due to the spending priorities of the super-wealthy relative to the rest of us.

As Stewart Lansley (2025) observes: “Despite the surge in asset values, the UK’s capacity to meet essential needs - from children’s services and young adult training to social and health care - has faltered, with resources steered instead to low social value, and increasingly high emission, activity. The plutocracy controls a growing share of resources. Britain is one of the highest users of private jets, contributing a fifth of related emissions across Europe. Scarce land and building resources have been used to construct walls of multi-million-pound luxury flats and mansions, mostly bought for speculative purposes and left empty for much of the year, by the mobile super-rich”.

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Principles of taxing wealth

How should the taxation of wealth be designed? Economists (e.g. IFS 2011) and campaigners (e.g. Tax Justice Network 2025) identify 4 ‘R’s of taxation, which are useful principles to inform the design of taxes across the board, including taxes on wealth.

Raising revenue

One of the main functions of tax is to raise revenue. Many (but not all) economists believe that tax funds government spending. Even economists who do not believe this, such as Modern Monetary Theorists, acknowledge that tax has a key role to play in raising revenue equivalent to a proportion of government spending, to avoid runaway inflation.

Currently, taxes based on wealth in the UK tax system (such as capital gains tax, inheritance tax and stamp duty) raise an amount of revenue that is much smaller than the amount raised by taxes on income (principally income tax and national insurance contributions) or taxes on expenditure (principally VAT and excise duties). Therefore there is significant scope for raising more revenue through wealth taxes.

Redistribution

Any tax which is not simply levied as a proportion of the relevant tax base (e.g. income, wealth or expenditure) will have distributional effects. There is a clear consensus among economists that the taxation of income should be progressive, i.e. that richer people should pay more (as a percentage of their income) than poorer people. This seems like an important feature of a wealth tax system as well. As shown in the next section, the current UK tax system taxes wealth at lower rates than income, and taxes very wealthy individuals at lower rates than very high-income individuals. Income from work is taxed more highly than income from wealth (capital gains tax rates are lower than income tax rates, despite recent moves in the direction of equalisation).

Repricing

There is a key role for tax in correcting negative externalities by increasing the price of goods and services that are socially undesirable. Normally this is applied to environmental externalities (for example taxing carbon emissions) or goods with negative health impacts (e.g. tobacco or alcohol). However, similar arguments can apply to inequality. Based on the evidence presented earlier in this report, it seems clear that high and growing wealth inequality is a socially undesirable outcome, with a broad range of negative spillover effects, and hence that taxing wealth can be viewed as correcting or reducing some of those negative externalities.

Representation

In a democratic society it is essential that tax should be connected to political representation.  It is also crucial that the burden of tax is seen to be fair across the whole population, with those with the greatest ability to pay (the super-rich) paying an appropriate share. As explained below, one of the main problems with current taxes on wealth (e.g. inheritance tax) is that they are seen by most of the public as easy for the super-wealthy to avoid with sufficient tax planning (and this view is justified, given the loopholes in the current inheritance tax system). At its extreme, the deficiencies in the current system of taxation of wealth give rise to the widespread view that “only the little people pay tax”, which undermines the democratic legitimacy of the tax system.

Design objectives for taxing wealth

As well as the broad four ‘R’s framework for the principles of taxation presented above, we can identify a number of design objectives for what taxes on wealth should look like. Parkes and Johns (2024) suggest that the tax system should:

• Be fair to workers, not advantage income from wealth
• Support productive economic activity, prioritising wealth creation over extraction
• Be progressive over the totality of income, whether earnings from work or income from wealth
• Contribute to wider societal goals
• Close routes for the wealthy to avoid paying tax

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Reforming existing taxes on wealth

Taxation of wealth in the current tax system

While the UK does not have a tax on wealth stocks, it does have a range of taxes on transfers of assets which are components of wealth. These include:

• Inheritance tax – levied on the estates of the deceased
• Capital gains tax – levied on financial assets when sold
• Stamp duty (Land and Buildings Transaction Tax in Scotland) – levied on house purchases above a threshold property value

There are good reasons for thinking that the current system of taxing wealth in the UK is inadequate. As Summers (2021) observes: “The UK’s current approach to taxing wealth lacks a clear set of objectives. The legislation is complex; anti-avoidance rules have often been used to patch systemic incoherence. There are large distortions, especially access different asset classes, for no good reason. Existing taxes – most of all IHT [inheritance tax] – are unpopular, partly driven by a perception (which has some basis in reality) that the wealthiest do not pay.”

Lansley (2025b) notes: “Despite the questionable sources of rising wealth holdings, the tax system is still heavily biased towards income from work rather than from assets (on dividends, capital gains and inheritance). While income is taxed at an average of around 33%, wealth is taxed at around 4%. Through political inertia, the tax system has failed to catch up with the growing importance of wealth over income in the way the economy operates, and does little to dent the growing concentration of wealth holdings at the top.”

This section outlines reforms to components of the current tax system that would address most of these problems and significantly increase the revenue yield and progressivity of revenues from taxes on wealth, without introducing a specific tax on wealth stocks.

As well as increasing tax revenues raised from wealth, these reforms would generate two important additional benefits. First, they would make the tax system demonstrably fairer, in part by reducing wealth inequality and in part by tackling clear examples of unfairness in the tax system itself, which would help to reduce some of the negative spillover impacts that wealth inequality has on public faith in democracy. Second, they would help to boost growth (far from acting as a drag on growth, as is sometimes claimed). Taxes on wealth can boost growth in three ways – by directly mitigating some of the negative impacts of wealth inequality on growth that are outlined above, by enabling increased investment in public services that can help to mitigate some of those same impacts, and by eliminating distortions in the tax system that act as a break on growth. Examples of such distortions are the productivity drag that results from shifting employment income into capital gains, and incentives to invest in unproductive assets (such as real estate) at the expense of more productive assets.

Capital gains tax reforms

The following reforms to capital gains tax (CGT) have been suggested in recent economic literature:

• Aligning CGT and income tax rates so that individuals pay the same amount of tax on a realised capital gain of a given size (above a certain threshold) as they would on earned or investment income of that size. In the October 2024 budget, CGT rates were increased from 10% to 18% for basic rate taxpayers (who pay 20% income tax in the UK except for Scotland) and from 20% to 24% for higher rate taxpayers (who pay 40% income tax in the UK except for Scotland). However, current CGT rates are still significantly below the income tax rate (especially for higher and additional rate taxpayers). Between 1988 and 1998, CGT rates in the UK were aligned with income tax, with an allowance for inflation. The Mirrlees Review (IFS 2011) recommended returning to the alignment, albeit with an allowance for the normal rate of return, measured as the interest rate on medium term government bonds, rather than inflation.
• Reducing the annual allowance for capital gains in CGT, which is separate from the income tax allowance and is set at £3,000 for 2025/26. More ambitiously, the CGT allowance could be merged with the income tax personal allowance (currently £12,570) so that individuals with more than £12,570 of income would not have a separate allowance for capital gains and would pay CGT from the first pound of capital gains.
• Abolishing Business Asset Disposal Relief and Investors’ Relief in CGT. Business Asset Disposal Relief offers a reduced rate of CGT for business owners who sell their business (in whole or part), up to a lifetime allowance of £1 million. Investor’s Relief offers a reduced rate of CGT for investors in small companies not listed on stock exchanges, again up to a lifetime allowance of £1 million.
• Applying a settling-up charge on built-up gains when people leave the UK (Resolution Foundation, 2025). This would close a loophole in CGT whereby people who leave the UK without selling their assets do not pay CGT on the accumulated gains on their assets before they leave.
• Removing the ‘death uplift’ whereby CGT is not paid on capital gains from the point where the asset was originally acquired, up to the death of the asset-holder, when an asset-holder dies. Goss (2024) estimated that abolishing this ‘death uplift’ and charging CGT on these assets would raise approximately £1.6 bn annually.

Inheritance tax reforms

The Autumn 2024 Budget (HM Treasury, 2024) announced several reforms to inheritance tax (IHT), including:

• Making unused pension pots after death liable for IHT from April 2027 onwards (previously they were exempt)
• Restricting full agricultural property relief (APR) for IHT to a maximum of £1 million per estate, with only 50% relief above this point
• Combining APR and Business Property Relief (BPR) into a single relief with a total maximum of £1million per estate, with 50% relief above this.

The following additional reforms to IHT have been suggested in recent literature:

• Further restricting IHT relief on business properties (Murphy 2024, Demos 2024)
• Abolishing loopholes in IHT (for example, the exemption from IHT for assets transferred more than 7 years before the estate-holder’s death, with a sliding scale of reliefs for assets transferred between 3 and 7 years before death)
• Abolishing IHT and replacing it with a lifetime capital recipients’ tax (LCRT), so that the recipient of an inheritance or inheritances would be liable for the tax, rather than the estate of the deceased; an LCRT would be a tax on all gifts or bequest received through a person’s life, above a specified lifetime allowance, and after reaching this limit, further gifts would be taxed at income tax rates (IPPR 2018, Meade 1978)

Reforms to income tax and national insurance contributions

Several suggested reforms to income tax and national insurance contributions (NICs) have been made recently, including:

• Moving towards equalising taxation of unearned income and earned income by reducing or abolishing employee NICs and increasing income tax rates instead). For example, the Resolution Foundation (2025) calls for a 2p switch from employee NICs to income tax. The logical endpoint of this approach would be to abolish employee NICs and replace them with a new income tax system that would apply to earned and unearned incomes equally. This was the recommendation of the IPPR Commission on Economic Justice (IPPR 2018) and the IFS Mirrlees Review (IFS 2011).
• Applying National Insurance to unearned incomes. For example, Murphy (2024) suggests an investment income surcharge on unearned incomes currently not subject to earnings; Demos (2025) propose that NICs be applied to income from property rentals, and to incomes from partnerships.
• Restricting pension tax reliefs to the basic rate of income tax.
• A lifetime cap on contributions to ISAs. Currently, individuals can save up to £20,000 per year into Individual Savings Accounts (ISAs), with investment income and capital gains from ISAs being completely exempt from income tax. This tax break disproportionately benefits wealthy individuals, because they are the only people with enough spare income or wealth to make use of the full ISA allowance.

In addition to these proposed reforms, the UK closed a major loophole in the income tax system by ending non-domiciled status (the scheme whereby some people living in the UK only had to pay UK income tax on the money they earned in the UK, but not on money earned elsewhere in the world). In the October 2024 Budget the Government abolished non-domiciled status from April 2025, replacing it with a residence-based regime. This also brings foreign earnings into the UK inheritance tax system (HM Treasury 2024).

Property tax reforms

Several reforms have been suggested to make taxes on property more progressive than the current, regressive system of council tax (CT). These include the following:

• Reforming council tax by introducing higher CT bands (Murphy 2024) or replacing it with a proportional property tax (PPT - an annual tax of a set percentage of the valuation of the property), with higher rates for buy-to-let and second homes (WPI Economics 2021, Leunig 2025). Some commentators have suggested that the PPT should be applied to high-value properties only (for example, Goss 2025 suggests a PPT for homes worth over £2 million).
• Applying higher CT rates to second homes (in addition to what we have already), such as the Demos proposal (Goss 2025) for higher CT rates on second homes for non-UK residents.

Some commentators have also proposed replacing the current stamp duty on house purchases with a tax levied as a proportion of the house price value (WPI Economics 2021; Reed 2024).

Revenue yield estimates for reforms

Table 1 below shows some illustrative estimates of revenue yields for reforms to existing taxes on wealth and income from recent research from Demos and the Resolution Foundation. It is included to facilitate comparison with the estimated revenue yields for the wealth tax proposals in the next section.

Table 1. Revenue yields from selected reforms

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Introducing new taxes on wealth

The previous section examined options for reforming existing taxes on wealth, most of which tax transfers of wealth. This section asks whether there is a case for going further, and introducing a specific tax on stocks of wealth – a wealth tax.

Drawbacks to the way wealth is taxed in the current UK tax system

There are a number of drawbacks to the way wealth is taxed in the current UK system. Many of these can be addressed by changing the current tax system as discussed in the previous section, for example:

• Stamp duty on house purchases (LBTT in Scotland) is a badly designed tax because it discourages mobility (which may negatively affect the economy), and someone who moves house pays more tax than someone who stays put, a form of comparative unfairness that does not seem to have a good justification. This can be addressed by abolishing stamp duty and replacing it with a tax on property values.
• The death uplift in the inheritance tax system means that inherited assets are undertaxed compared to those sold during a person’s lifetime, but this could be solved by abolishing the uplift and charging capital gains tax on assets transferred at death.
• Wealth is taxed relatively lightly compared to income because of differentials in the rates of capital gains tax compared to income tax. However, this can be largely addressed by increasing rates on capital gains tax, inheritance tax and so on, as explained in the previous section.
• There are a number of loopholes in the current inheritance tax system that make it possible for the wealthiest (who are most able to afford to hire sophisticated tax planners) to reduce or eliminate their tax liability. For example, the Office for Tax Simplification (2018) estimates that the effective tax rate for inheritance tax declines with increasing wealth above £2m, to just 10% for estates above £10m. However, these loopholes could be closed by reforming inheritance tax or replacing it with a Lifetime Capital Recipients Tax.

However, there are three additional issues with the current tax system that cannot obviously be fixed through reforms to the current tax system. First, because inheritance is payable on estates at death, families with a smaller average number of years per generation (e.g. people who have children at earlier ages) will tend to pay inheritance tax a larger number of times over a very long period (e.g. a century or more) than those with a longer gap between generations. Inheritance tax is also payable sooner if estate holders have lower life expectancies (because they die earlier). This results in issues of comparative unfairness where the tax burden for different families is partially dependent on the life expectancy of the eldest generation in each estate, as well as how old the next generation is when they inherit.

Secondly, inheritance tax is very unpopular because it is seen by many taxpayers as a form of double taxation, regardless of the merits of this argument (O’Neill 2007). By contrast, a tax on wealth stocks for the very wealthy is much more popular in recent polling, provided that the wealthiest really would pay it and not avoid it (Advani et al 2020).

Finally, reforming the current tax system so that it is more regressive with respect to wealth doesn’t fully address the significant increase in wealth inequalities seen in the last four decades in the UK. These wealth inequalities have arisen, at least in part, because of the under-taxation of wealth transfers during this time. It is difficult, perhaps impossible, to fully address the increased inequality arising from the previous under-taxation of wealth retrospectively by relying on changes to taxes on transfers of wealth alone (Advani et al 2020). It would be easier to address the historic under-taxation of wealth by taxing current wealth stocks.

The next two sections discuss the pros and cons of introducing a specific tax on stocks – not transfers – of wealth. The first discusses a one-off tax on wealth stocks, while the second discusses a repeated (probably, although not necessarily, annual) tax.

A one-off tax on wealth stocks

Objectives

The LSE Wealth Tax Commission (hereafter WTC – Advani et al 2020) recommends a one-off tax on wealth. The authors of the WTC identify five key objectives for a wealth tax:

• The tax should raise substantial revenue
• It should do so efficiently
• It should be fair
• The tax should be difficult to avoid
• A wealth tax should achieve these objectives better than the alternatives

Threshold and rate

The WTC estimated that a one-off wealth tax charged on all wealth above £500,000 and charged at 1% per year for 5 years (so a 5% total charge across the five years in total) would raise £260 billion; at a threshold of £2 million it would raise £80 billion (note that these estimates are at 2019/20 prices and would be substantially higher at 2025/26 prices).

Unit of taxation

The WTC recommends charging the tax on individual rather than household wealth (with couples splitting assets).

Tax base

The WTC recommends that the basis for the wealth tax be as comprehensive as possible, including the following sources of wealth:

• Principal private residences
• Any other property owned
• Pension pots
• Financial assets
• Physical assets (e.g. collections of cars, paintings, wines etc)
• Privately-owned business assets

The rationale for making the tax base as wide as possible is for two reasons. First, a wide base makes it difficult for the wealthy to avoid the tax by shifting wealth into exempt classes of assets. Second, a wide base is important for reasons of comparative fairness between different taxpayers. If (for example) taxpayer A has £5 million of assets in pensions, while taxpayer B has £5 million in other financial assets (e.g. stocks and shares, or savings accounts), it is fairest for both to be equally liable for any wealth tax that is levied.

A possible counterargument on the grounds of practicality is that there should be a more generous allowance for certain forms of wealth that taxpayers have been encouraged to save into during their working lives by the structure of the tax system (for example, pension pots, ISAs and principal residences), and the wealth tax is likely to be more popular if these assets are treated more leniently. However, there is a clear trade-off between exemptions and revenue potential; the more assets are exempted (partially or fully) from the base of the wealth tax, the lower the potential revenues at given rates and thresholds.

Valuation of assets

The WTC recommends that assets be valued based on their open market value (the price which the asset might reasonably be expected to fetch if sold in the open market).

Avoidance issues

A crucial advantage that a one-off wealth tax has is that it is not possible for the wealthy to avoid subsequent payments of a tax by changing their behaviour, because there are no subsequent payments. For recurring taxes (covered below), there are more incentive effects that have to be taken into consideration.

Operating the tax

One issue with paying the tax is what to do with people who are liquidity constrained (asset-rich, cash poor), who might have very limited cash or other liquid assets with which to pay a wealth tax. The WTC suggests that payments could be deferred by this group, as follows:

• Any wealth tax due in respect of pension wealth should be payable out of the total value of pension at retirement
• The standard payment period for a one-off tax would be five years
• In situations where the taxpayer would still have difficulty paying, they could apply for a further deferral of the payment

Administration of the tax

Advocates of a one-off wealth tax suggest that the tax administration should be based on self-assessment (like the UK income tax system), involving a self-declaration of asset values by the taxpayer, backed up by a compliance team at HMRC. Substantial investment in HMRC capacity would be necessary for a wealth tax to succeed. Effective enforcement of compliance is essential, and there are substantial gaps in the information that HMRC currently holds. As Advani et al (2020) note, HMRC does not currently have records on the value of individual properties in the UK, for instance.

Improving HRMC’s capacity to tax wealthy taxpayers, and improving its use of its existing enforcement powers, would help to improve both the effectiveness and the fairness of the existing tax system (including by closing the tax gap), as well as laying the institutional groundwork for a one-off (or annual) wealth tax (National Audit Office 2025, TaxWatch 2025).

A recurring wealth tax

This section assesses the case for a recurring wealth tax on an annual basis. Many of the issues that arise with a recurring wealth tax are similar or identical to the issues raised by a one-off wealth tax, so in this section we only discuss the issues that are specific to an annual tax.

Thresholds and rate

Tax Justice UK (2025) proposes an annual wealth tax at a rate of 2% above £10 million, which would only affect around 20,000 people and would raise £24 billion per year. The LSE Wealth Tax Commission estimated that a wealth tax starting above £2 million at a rate of 0.6% could raise £10 billion per year after ongoing administrative costs (at 2019/20 price levels).

Reed (2023) recommends a wealth tax for Scotland with a tax-free threshold of £1 million, and a progressive annual marginal rate scale (0.5% between £1 million and £2 million, 1% between £2 million and £5 million, and 2% over £5 million). This would be assessed at the household level and would be estimated to raise £1.4 billion per year (with around £800 million of this from the wealth band between £1 million and £2 million) at 2023/24 price levels.

Johnson et al (2024) recommend an annual UK wealth tax on household assets above £2 million, with a progressive annual marginal rate scale starting at 2% for household wealth between £2 million and £5 million, 3% between £5 million and £10 million and 4% above £10 million, estimating that this would raise around £43 billion per year.

In the United States, Saez and Zucman (2019) propose a wealth tax with a 2% tax rate for assets above $50 million and a 10% marginal tax rate above $1 billion.

Avoidance

A recurring wealth tax has additional issues around possible avoidance because the recurring nature of the tax leads to additional opportunities to avoid the tax. If the tax is badly designed with significant exemptions, this could significantly reduce potential yield.

One potential avenue for avoidance is moving abroad. CenTax (a team at the London School of Economics and the University of Warwick, including researchers who worked on the LSE Wealth Tax Commission) suggest that between 7% and 17% of potential revenue could be lost due to avoidance behaviour. Even taking this potential behavioural change into account, Tax Justice UK estimates that a wealth tax at 2% per year above £10 million would still raise £24 billion per year. For context, the Office for Budget Responsibility (2025) forecasts that income tax will raise around £330 billion in total in 2025/26.

Administration costs

The administration costs of an annual wealth tax would be significantly higher than a one-off wealth tax, because individuals would have to be reassessed for the tax each year. However, as with income tax self-assessment, the tax return process would become more familiar after a few years of submitting returns.

Asset-rich, cash poor individuals

Individuals who are liquidity-constrained may be more of a problem for a recurring wealth tax than an annual wealth tax. For illiquid assets such as property, there should be the option for taxpayers to ‘roll up’ wealth tax liabilities to be paid to HMRC at the time the property is sold.

Tax base

It is even more important for an annual wealth tax to include all assets in the tax base. Unlike a one-off tax, the exclusion of assets has severe consequences for efficiency and for the amount of revenue raised. Evidence from wealth taxes in other countries shows that individuals are very likely to move assets into lower taxed or untaxed asset classes where these exist. However, this presents a trade-off between anti-avoidance objectives and administrative costs: the base must be comprehensive to prevent avoidance, but the valuation of assets such as private businesses is more problematic when it needs to be done regularly. Valuations can be made periodic, but this could allow individuals to ‘game’ the valuation date.

Lobbying for exemptions

A recurring wealth tax creates more opportunities for the very wealthy and their representatives to lobby for additional exemptions to the tax. Perret (2021) provides a useful survey of the way in which many previous attempts at an annual wealth tax, across various countries, have been undermined by lobbying. There is a clear pattern of a negative feedback mechanism whereby lobbying leads to design flaws, which leads to predictable avoidance, which undermines the efficiency and fairness of the tax and (critically) the revenue that can be raised. Eventually, the tax raises so little and distorts so much that it becomes dispensable and not worth the political contention. This is a good example of how wealth inequality exacerbates political inequality, which in turn leads to high levels of wealth inequality, as outlined earlier in this report.

The importance of good tax design

Survey work conducted for the LSE Wealth Tax Commission (Rowlingson et al 2020) showed that the most favoured option for raising additional revenues was the introduction of a new wealth tax. However, when asked to give the strongest argument against such a tax, respondents’ most-cited concern was that the richest would either emigrate or find loopholes to avoid paying. The fact that the super-rich have strategies for reducing tax that are not available to ordinary taxpayers is therefore both a reason to change the system, but also a constraint that makes progressive reforms seem impossible.

Should a wealth tax operate alongside, or replace, existing taxes on wealth?

There is some debate in the literature about whether a specific tax on wealth should operate alongside existing taxes on wealth (or other types of tax such as taxes on income), or replace them.

For one-off wealth taxes, it seems clearer that these should operate in addition to existing taxes (because the vast majority of existing taxes are recurring taxes, and replacing an existing tax with a one-off tax will inevitably reduce revenues from future taxation).

For recurring wealth taxes, the situation is less clear. In some proposals for a recurring wealth tax it is specified as a measure that would sit on top of existing taxes (for example, Tax Justice UK’s proposed wealth tax on assets of more than £10 million). In other cases the wealth tax is designed to replace at least one component of the existing tax system; for example, Johnson et al (2024) suggest replacing inheritance tax with a progressive wealth tax on assets above £1 million. Replacing components of the existing tax system offers the opportunity to get rid of unpopular taxes (such as inheritance tax) and to replace them with a wealth tax, which polls a lot more favourably with the public (at least for now; we do not know a priori how the popularity of a wealth tax would change, if at all, after its introduction).

There is also the potential to replace existing taxes on wealth (or components of wealth) that are not very progressive with respect to wealth with more progressive taxes. This is one of the rationales for the various proposals, examined above, to replace council tax with a proportional property tax. Furthermore, there is scope for shifting the overall tax base away from income (or expenditure) and towards wealth. For example, if the yield from a recurring annual wealth tax was substantial, it could be used to reduce income tax, national insurance contributions, or expenditure taxes such as VAT. Equally, the opposite point could be made, that increasing taxes on wealth (whether on stocks or transfers) so that the very wealthy contribute more is a political necessity before those with more ‘ordinary’ levels of wealth should be asked to pay more in tax; and that, if ever-building pressure on public services were to make it necessary for governments to increase tax rates on income or expenditure, this would only be acceptable to the public if it was clear that those with wealth of any level had already been asked to pay their fair share.

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Responding to critiques of taxes on wealth

In the last couple of years, two high-profile reports (Murphy 2024, Neidle 2025) have argued that specific taxes on wealth taxes are inherently difficult to operate successfully and do not raise substantial sums of money, and that it would be better for governments looking to raise additional money from taxing wealth to reform existing taxes instead. This is also the view of some but not all of the leading tax policy commentators in the UK, such as the Institute for Fiscal Studies (IFS 2011, Adam and Miller 2025).  While it is certainly possible to raise substantial sums of additional revenue from taxing wealth without introducing a tax on wealth stocks, we argue that there is a case for a specific wealth tax, either in addition to existing taxes or as a replacement for certain aspects of the current tax system. Many of the arguments against a wealth tax from recent commentary are overstated or misplaced. This final section of the report looks at some common criticisms of a wealth tax and responds to them in turn.

Unpopularity

Criticism: a wealth tax on primary residence is likely to be unpopular mainly because of difficulties with paying the tax (because property is not a liquid asset).

For primary residences, it would be useful to allow owners to ‘roll up’ their tax liability so that it would only be paid when the property is sold (i.e. the government would take a stake in the equity of the property, similarly to how the Help To Buy scheme for first-time home buyers worked). Taxpayers should be allowed to subtract rolled up wealth tax payments from the valuation of their property in future years of wealth tax assessment. It is also important to bear in mind that most proposals for a wealth tax only affect very wealthy individuals, who are likely to have more liquid assets (e.g. cash and financial investments) that could be used to pay a wealth tax liability.

Valuation of properties

Criticism: valuation of properties is difficult.

Valuations were achieved relatively easily in 1991, when council tax was rushed in as a replacement for the unpopular community charge (poll tax). If there was a statutory mechanism for regular revaluation of properties (e.g. every five years), this would be a good thing for the purposes of reforming property tax as well as for introducing a wealth tax.

Valuation of physical wealth and other hard-to-value assets

Criticism: physical wealth (e.g. works of art) is inherently difficult to value. This is also the case for certain other forms of wealth (e.g. private businesses). Hence there would be considerable costs to administering a wealth tax because of the inevitable high level of disputes that would arise as to the basis of charge to be made.

Valuations of physical assets (and other assets such as businesses) are achieved for inheritance tax purposes when estate-holders die using the Open Market Valuation approach, and inheritance tax is still a viable tax that yields revenue for the Exchequer on an annual basis despite any difficulties or disputes that occur, so by definition it must be the case that wealth valuations are possible for a wealth tax if they are possible for inheritance tax. Valuing physical assets on an annual basis should become easier over time as taxpayers (or their accountants) become familiar with the process of completing annual wealth tax returns.

Taxation of pensions

Criticism: rather than taxing pension wealth pots, it is better to tax pension income through the income tax system.

While important changes could be made to the treatment of pensions in the income tax system that would save money (e.g. limiting or abolishing the ability to take up to 25% of the pension pot as a tax-free lump sum), it is important to include pension pots in the basis for a wealth tax so as not to encourage avoidance behaviour. There is also a potential issue of fairness across different taxpayers; if pensions are partially exempted from the wealth tax, then two taxpayers with the same amount of gross assets but a different composition of assets (e.g. between pensions and other financial assets) might end up paying quite different amounts of tax. This might be justifiable for other reasons (e.g. based on the tax treatment of pensions in the income tax system compared to ISAs and other financial assets), but it is not obvious that including pensions as taxable assets in a wealth tax is a bad idea per se.

Incentives for migration

Criticism: a wealth tax creates incentives to emigrate to avoid the tax.

Research by CenTax suggests that the incentives to migrate due to the wealth tax at the rates that most advocates are recommending are not that large. However, to reduce the incentive to emigrate it might be useful to introduce an ‘exit tax’ on wealthy people relocating from the UK to another country (Advani, Poux and Summers 2024).

Adverse impacts on saving

Criticism: a wealth tax penalises saving in the UK because the effective (post-tax) returns to saving are reduced.

While this may be the case, the impact on growth might actually be positive if wealthy individuals save less – because the less they save, the more they spend (given that consumption equals income minus saving). This would lead to a demand boost because wealthy individuals’ marginal propensity to consume has increased.

Adverse impacts on investment

Criticism: a wealth tax would reduce investment in the UK because wealthy individuals are saving less and hence there are fewer funds for investment.

This argument assumes that wealthy UK-based individuals are the main source of funds for investment for UK companies. However, this is simply not the case – investment is financed by companies through a whole range of sources including debt, loans, equity (share capital), retained profits and so on. A large proportion of investment in the UK is financed by foreign investors who will not be subject to a wealth tax on UK residents in any case.

Competitiveness of UK firms vs competitors

Criticism: a wealth tax would make UK businesses uncompetitive when operating abroad – because the capital they have invested abroad would be subject to the UK wealth tax whereas their competitors’ capital is not.

This argument is economically inaccurate. UK businesses have access to capital from a whole range of sources – individuals, banks and other financial institutions in the UK, and individuals, banks and other financial institutions based abroad. Only some of the first group – UK-based individuals – are subject to a wealth tax. But that doesn’t change the cost of capital, as UK-based individuals are not the “marginal investor” for most firms.

Narrow tax base

Criticism: the tax base of a wealth tax is very narrow, with 80% of the projected yield coming from just 5,000 people (those with wealth of £50m or above, based on figures from the LSE Wealth Tax Commission (Advani, Hughson and Tarrant 2020)).

This is true, but it is also a consequence of the extreme levels of wealth inequality in the UK, precisely the problem that the tax is designed to address. If the tax only applies to a small number of people it means that overall administrative costs are also (by definition) relatively small, and it helps to boost its popularity among the wider public.

The UK would be an outlier

Criticism: the UK would be an outlier – no-one has attempted a wealth tax of the type proposed.

This is not true; several examples of wealth taxes exist, either currently or in the last few decades (both annual recurring wealth taxes and one-off levies). For example, Norway, Spain and Switzerland all currently have wealth taxes. Even if it were true, this is a weak argument against implementing a new tax. In the 1940s no state had levied a value added tax (VAT was not invented until 1954), but this does not mean that VAT should never have been introduced. There should be no general presumption against democratic states finding innovative ways to make their tax systems work better.

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Conclusion

The UK faces an urgent need to address widening wealth inequality, not simply as a matter of social justice but as a critical lever for economic renewal, democratic stability, and public confidence in government. Wealth inequality has eroded social mobility and exacerbated generational, racial, gender and regional divides. These trends undercut the aspirations of a meritocratic society and threaten the legitimacy of its democratic institutions.

Wealth inequality also undermines economic prosperity. The persistence of concentrated wealth has contributed to the rise of financialisation and rentier dynamics, diverting resources from productive investment and innovation towards speculative and extractive activity. Asset prices have soared, especially in property and pensions, yet this growth has not translated into broader prosperity. The consequences are visible in stagnating real wages, weakening public sector capacity, and diminished aggregate demand, as middle and low-income households are squeezed by debt and cost-of-living pressures. These systemic imbalances are aggravated by a tax system that privileges income from wealth over income from work, facilitating tax avoidance and incentivising behaviour that perpetuates inequality.

There are critical weaknesses in existing taxes on wealth, such as capital gains, inheritance, and council tax, which are fragmented, riddled with loopholes, and regressive. As a result, wealth is taxed less than earned income, undermining both revenue and perceptions of fairness. The system has failed to adapt to changes in the structure of society and our economy.

However, there are many credible options for reforming existing taxes on wealth to address these concerns. These include aligning capital gains tax rates with income tax, tightening allowances and exemptions, and transitioning inheritance tax towards a recipient-based model, to better reflect principles of equality and ability to pay. Council tax could be replaced with a fairer, proportional property tax system, while national insurance contributions could be extended to cover income from sources such as property rent and partnerships.

Introducing a new one-off or annual tax on stocks of wealth also merits serious consideration. Many objections to such a tax - such as fears of capital flight, administrative complexity, or negative impacts on entrepreneurship – can be overcome through careful policy design and adequate investment in administrative and enforcement capacity.

Tackling wealth inequality through progressive taxation offers a ‘win-win-win’ opportunity to make the tax system fairer while reducing wealth inequality, to raise significant additional revenue, and to support sustainable and broadly shared economic growth. By ensuring that those who benefit most from collective prosperity contribute their fair share, we can restore public trust, invest in the common good, and build a more equitable and prosperous future for everyone.

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References

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