Afternoon summary
Higher earners in Scotland are to be taxed more heavily after ministers in Edinburgh sought to reduce cuts to public services and fund an expensive council tax freeze.
Updated
Sunak rejects call for higher taxes on wealth and says worrying about inequality does not keep him awake at night
While he was giving evidence to the liaison committee earlier, Rishi Sunak was asked about the morality of tax policy by the Labour MP Liam Byrne, chair of the business committee.
Byrne started telling Sunak that sales of luxury cars were at an all-time high while food banks were running out of food, homelessness was at a record level and millions of people faced destitution. He asked Sunak if he lay awake at night worrying about the levels of inequality.
Sunak replied:
No. I want to make sure we can reduce economic inequality and spread opportunity, and I’m please that we are making progress on that.
Sunak said that income inequality was lower than it was in 2010, that there were 1.7 million fewer people living in absolute poverty, and that the number of people in low-paid work was at its lowest level on record.
Byrne put it to Sunak that wealth inequality has gone up. And he said the UK has the worst record in inequality of any major economy. He asked Sunak to accept that the tax system should be fair and that those with the broadest shoulders should pay more, and Sunak replied: “Of course I do. I believe in a progressive tax system, and that’s what we’ve delivered.”
Byrne then asked why, if one person in five is set to pay 40% income tax, it was right for people who get their income in the form of investment income to pay around half of that.
Sunak said he did not agree this was wrong. Capital gains tax on second homes was higher than before, he said. And, with investment taxes generally, rates have to make allowance for the value of investment to the economy.
But, Byrne said, investment income had doubled during the course of the century, rising to to £80bn. That mean rich people were paying tax rates of around 21% or 22%. He asked: ‘“Surely that is morally wrong.”
Sunak did not accept that. He said it was Gordon Brown who cut capital gains tax, and he pointed out that Byrne was a Treasury minister at the time. Byrne said that that was 13 years ago, and that wealth inequality had widened a lot since then.
Byrne is due to publish a book on wealth inequality next year, which may partly explain why he was so keen to ask about the wealth taxes. But it is also an issue that is likely to become increasingly topical. Labour is currently only proposing a very small number of highly-targeted tax increases, but in the past Keir Starmer and Rachel Reeves have hinted that they would support removing what are seen as the tax advantages for people who get income from wealth.
And in its recent report on the economy, Ending Stagnation, the Resolution Foundation explicitly proposes taxing wealth more. The report which says:
Although we must wait to assess the full – and potentially significant – effect of newly raised interest rates in reducing overall levels of wealth, the big story of the last 40 years has been of private wealth racing ahead of income, rising from around three times to more than seven times of GDP. One might have imagined that as wealth increased, tax on wealth would increase in rough proportion. Figure 55 reveals nothing of the sort has happened. Instead, wealth taxes remain roughly where they were 15 or even 35 years ago, at somewhere around 3 per cent of GDP.
And here is figure 55 that illustrates this.
Starmer attended the launch of the report. He did not endorse all its recommendations, and its tax plans did not feature in the press summary of the main points, but, as Byrne’s questions showed, there will be people in the party pushing for a future Labour government to move in this direction.
Updated
