The lie that protects the rich from tax rises

Better late than never, Rachel Reeves finally followed the lead of the SNP Government in Holyrood and announced that the heinous two child cap on benefits will finally be abolished from May next year, cue a load of hypocritical Labour MPs trying to pretend that they supported this measure all along despite voting to keep it weeks after the last general election. Reeves announced the abolition of a policy which has been described as the greatest driver of child poverty as a sop to the restless Labour back benches staring electoral annihilation in the face.

Most attention has focused on the decision to freeze income tax allowances, which according to the Resolution Foundation will have a disproportionate effect on the low paid, causing people earning less than £35,000 a year to pay more by 2030 than if the chancellor had raised the basic rate of income tax by 1p. The anti-poverty charity described the measure as a “less progressive way to raise personal taxes than a manifesto-breaking rise in Income Tax rates, which would have cost less for anyone earnings under £35,000 a year.”

But I want to talk about what wasn’t in the budget, and hasn’t been in any budget in the UK for decades. While the gap in wealth between the richest and poorest in the UK widens into a yawning chasm and the very richest continue to hoard an ever increasing proportion of national wealth, no chancellor since the 1970s has attempted to tackle wealth inequality in the UK and make the richest pay their fair share. In this vital respect Reeves is no different from the Conservative chancellors who came before her, taxing the poor to benefit the rich.

The wealthy and their bought and paid for advocates in Britain’s political parties argue that raising taxes on the richest is counterproductive as tax increases would merely cause the super rich to pick up their yachts, collections of super cars and country estates and decamp to a tax haven. This line has become an accepted truth in British politics, and it is deployed as an effective shield to protect the greed of the wealthiest in order to allow them to continue to enrich themselves while public services crumble.

Yet it’s a lie. In the summer of last year there was a media blitz, claiming that millionaires were fleeing the UK in order to avoid the possibility of tax rises. At the height of the story, 30 reports a day were published in the British press, and the campaign was credited for the Labour government’s decision to weaken tax reforms which could have resulted in tax increases on the wealthiest.

Yet this media campaign was based on a single report from a company called Henley & Partners, a firm which specialises in selling golden passports to the super-rich and advises governments on setting up schemes to sell passports to the rich. One such scheme in Malta was ruled to be illegal by the European Court of Justice.

In fact, academic studies have consistently shown that tax rates have only a marginal effect on migration rates among the wealthy. The total number of millionaires reported on the Henley & Partners website to have migrated every year since 2013 to 2023 consistently represented around a mere 0.2% of millionaires annually.

The rich, like everyone else, live where they do because of quality of life factors, family and emotional ties, and reasons of habit, comfort, and convenience. Most of them are averse to uprooting themselves to move to the relative cultural desert of the average tax haven because it would bloat their already bloated bank accounts even more. The wealthiest already have more money than they need or can spend, more money is not a sufficient motivating factor to get most of them to leave their very comfortable homes and start afresh somewhere else.

A study from the London School of Economics published in January 2024 found that the vast majority of Britain’s extremely wealthy people would never leave the country for tax reasons, partly due to the stigma involved in doing so, and partly because they think lower-tax jurisdictions are “boring”.

Another study, from the American Stanford Center on Poverty and Inequality and published in 2016 found that state tax rates had a negligible effect on the propensity of millionaire to migrate internally within the USA to another state with lower tax rates. Moving within the same country is a much smaller emotional, logistical, and psychological step than moving to another country, even when you are insulated and protected by great wealth. A report from April this year found that two years after the US state of Massachusetts introduced a wealth tax, the number of residents making $1 million or more per year had increased by nearly 40% since the tax went into effect. The tax of an extra 4% on incomes over $1 million came into effect in 2022. The n report found the number of ultra-wealthy residents in the state, defined as those with at least $50 million or more — had actually grown since 2022, from 1,954 to 2,642 in 2024. The millionaires’ tax also greatly surpassed its projections in the first year, generating S2.46 billion for the state in 2023 alone.

Yet the myth that tax rises on the rich will be counter productive because they will only make the rich move continues to be trotted out as an unchallenged ‘fact’. The rich have their PR agents, they have disproportionate access to the media, fund political parties to do their bidding, and give donations to think tanks which churn out reports and studies favourable to their wishes. The wealthy have succeeded in corrupting democracy through networks of political donations, media ownership, and think tanks which purport to be independent.

The UK continues to turn its face against any suggestion that the rich should pay their fair share. The result is a budget like yesterday’s in which minor victories for the poorest like the abolition of the two child cap on benefits or the tax on properties over £2 million are convenient cover for a budget which primarily serves the interests of the rich.

It’s time to tax the rich, and it’s time to reform the system of funding political parties to prevent the wealthy buying democracy. None of these are likely to happen under Westminster, Labour, the Tories and the woefully misleadingly named Reform UK – the first time a party’s name was itself devised as a cynical lie – all have a vested interest in keeping things just as they are. With independence Scotland has a chance to make a clean break and develop a political system that represents the people, not those with the deepest pockets.

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