This article is a guest piece, written by Sara Hall, Deputy Director – External Affairs at Tax Justice UK

The UK is a rich country. However, wealth is concentrated in fewer and fewer hands. Income from this wealth is often taxed at much lower rates than income from work. And many loopholes allow the very rich and giant companies to shield and shift their wealth – reducing their tax bills. This affects every single person in the UK: lost tax revenue has consequences. Our NHS, public services and infrastructure are all in decline. It’s only through government investment that these things can be revived. And our tax system is essential to raising that revenue.

In this article we’re going to explore how our tax system is failing us – and how it can be improved to benefit everyone in the UK.

We have a two tier tax system

Let’s start with how income is taxed. We have a two-tier system when it comes to income; where income from work and income from wealth attract quite different levies. Let’s take an example. Former Prime Minister Rishi Sunak had a realised income of £2.2 million in 2023. He paid an effective tax rate of 23% on it – that’s a lower rate than the average teacher pays in tax and National Insurance on their income above the personal allowance of £12.6k per year.

Simply put, If you get your income from wealth and assets, the tax system disproportionately favours you over someone going out to work each day. This results in the UK government missing out on massive amounts of revenue that could be raised if income from wealth were taxed at the same rate as income from work. Declining public services and infrastructure are the result, as governments struggle to raise enough revenue to invest in day to day spending within their self-imposed fiscal rules.

Wealth inequality is growing

This two-tier tax system is also leading to growing wealth inequality. 1% of Britons hold more wealth than 70% of the rest, according to a recent report by Oxfam. Worldwide, since 2020, the top 1% have gained $26 trillion in new wealth, nearly twice as much as the other 99% of the world’s population. This ballooning of the wealth of the very rich is not sustainable.

It leads to inherently unstable societies that benefit no one, including the very rich themselves. It is a threat to democracy. And is fuelling the destruction of our planet.

Wealth should be taxed

Given the level of wealth – and its concentration – we are asking for a 2% wealth tax on assets over £10 million. This would raise up to £22 billion a  year. This would be a tax that would ask the very richest people in the country to pay just a little bit more, but would make a massive difference to public services investment. We want Capital Gains tax to be equalised with income tax rates, raising up to £15.2 billion a year. We saw some movement on this at the Budget, when the chancellor raised the top rate of capital gains to 24%.

Next, we‘re pushing for national insurance to be applied to investment income, raising up to £8.6 billion a  year.

We also propose the government introduce a 4% tax on share buybacks, raising approximately £2 billion a year.

We have large, costly, tax loopholes for the wealthy

We campaign for the government to reform tax loopholes, which are often exploited by the very rich and multinational companies. We recently handed in a petition to Downing Street signed by over 111,000 people demanding the government take measures so that Amazon and other multinational companies pay their fair share of tax. Tax reliefs aren’t all necessarily bad. In principle they can be used by the governments to try to encourage certain activities or types of investments. There are 1,180 tax loopholes in the UK and the National Audit Office estimates the cost of them to be £204 billion every year i.e. this would be the tax raised if these loopholes didn’t exist. The problem is it’s unclear whether these tax reliefs are working as intended or not: HMRC have assessed the effectiveness of just 365 of 1,180 of them over the past nine years according to reports earlier this year.

So it’s unclear to HMRC – and the tax payer – whether many hundreds of loopholes are working as intended, are good value for money or are being abused. HMRC must be given more resources to assess tax loopholes for effectiveness. We have identified several loopholes that could be closed, raising billions in tax revenue.

We need to abolish Video Games Tax Relief 

One of these loopholes is Video Games Tax Relief (VGTR) which cost a record £197 million  in 2022. Despite being designed as a relief to help independent developers produce “culturally British” games, evidence shows it is large, often multinational firms that are benefitting.

HMRC data shows that claims over £500,000 account for 88% of the total amount paid out. And one big company in particular seems to benefit from the lion’s share: US-owned company Rockstar, who produce Grand Theft Auto, revealed it obtained almost £80 million in VGTR in 2021-2022 – 41% of all VGTR  paid out in the UK.

We need to tackle international tax abuse

We’ve seen massive steps forward in our international campaigning on tax evasion and tax havens recently. Last month the United Nations voted to adopt a Tax Convention.

It will help create a more just global financial system and tackle international tax avoidance by wealthy companies.

To our dismay the UK government has consistently voted against the terms of reference of the Convention. We are part of an international movement that helped bring this UN Tax Convention about and are calling on the UK government to be on the right side of history and support the convention.

Our government also must do more to take action on tax havens and ensure that the British Overseas Territories and Crown Dependencies, like Jersey and Guernsey, publish registers of beneficial owners to show us who the real owners of companies are.

We were disappointed to see the government backtrack on previous commitments and allow some of the biggest tax havens to have legitimate access registers in the first instance, running the risk of continued secrecy and being out of step with the rules we have in the UK.

Our efforts in the UK will be in vain unless we take an international approach; and pursue the end of tax havens and tax abuse globally.

We’re making some progress

 At the last Budget, we saw the government act on several of our proposals.

They closed Inheritance Tax loopholes on agricultural land, for example. It means super rich families sheltering wealth in agricultural and business property will no longer be able to avoid the tax. This is a big win for our campaign.

The non-dom status was also finally abolished. We have been campaigning on this for years.

Air passenger duty on private jets was significantly increased. This is a great way to raise more revenue from the richest (and most polluting) in our society. And was another issue we have campaigned on before.

We are not only starting to see policy change we are also seeing our movement grow. Last month a coalition of over 50 Scottish organisations launched Tax Justice Scotland calling on Scotland’s political leaders to use devolved tax powers to deliver bold action on fairer taxes.

Will the government make more changes?

The Labour government, elected under a slogan of ‘change’, has a huge opportunity to reform the tax system, close loopholes and make it work for Britain, rather than in favour of the super-rich.

We’ve already seen some changes to capital gains tax and inheritance tax in the autumn Budget but this is not going far enough. Because of the state of the country and our run-down public services further changes will be needed, including looking to tax the super-rich and wealthy companies fairly.

Which is why Tax Justice UK will continue campaigning for a fairer tax system that taxes wealth the same as work. To create a fairer economy that works for everyone, rather than the wealthiest.

Together with the Patriotic Millionaires UK we are campaigning for a number of wealth tax policies that could raise many billions per year.

Taxing wealth more can build a brighter future

There’s a lot of wealth in the UK concentrated in the hands of the few. It could be put to much better use. It could be used to build high quality public services, reduce inequality and help fund a just transition to a low carbon economy.

For us the solution is clear: a better tax system that taxes wealth more, with fewer loopholes, could fund a fairer, greener future for the UK. The new Labour government took some small steps towards this at the recent Budget, but they must go much much further.

You can join our movement and take action here.