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When the UK government announced a cut in the 45 per cent top rate of income tax (on earnings over £150,000) in September, the backlash was huge. But protesters included a surprising constituency: those who would benefit.
You might expect it from the actor and comedian Steve Coogan, who said: “I’m quite happy to pay 45 per cent income tax. I don’t want a tax cut.” After all, show business types are notorious lefties. But the likes of John Caudwell, retail billionaire and Conservative party donor, also denounced it. “It was just absolutely stark raving mad,” he told Bloomberg. “There was no political sense in it. There was no sense of fairness.” He was not the only Tory donor to take that view, according to broadcaster ITV.
This is not the first such outcry in the UK — wealthy pensioners have said don’t need winter fuel support from the state — but the sheer number of rich people saying loudly they are happy to pay more tax feels new. Factors behind this may include the pandemic (which largely boosted the wealth of the already rich), a visibly fraying state, and weak long-term wage growth.
In January this year, more than 100 millionaires, mostly from developed countries, also signed an open letter calling on governments to make them pay more tax. “We know that the current tax system is not fair,” they wrote, pointing out that both their wealth and wider inequality had grown during the pandemic. “To put it simply, restoring trust requires taxing the rich. The world — every country in it — must demand the rich pay their fair share.” The signatories included Americans Morris Pearl, a former managing director at BlackRock, and Nick Hanauer, an entrepreneur and venture capitalist.
It is not just the very rich, either. In 2020, an Ipsos survey in the UK found that earners of £35,000-plus a year were most likely to agree with the statement, “I am prepared to pay more taxes myself in order to fund public services”.
In some countries, it is easy to do this: you can simply write a cheque to the government, although not many people do. In the UK, just 200 payments of extra tax — ranging from 4p to £600,000 — were made between 2000 and 2017, an FT analysis of official figures found. Norway received a paltry $1,325 when it launched a voluntary income tax scheme in 2017. In the US, it was rather more, with about $45mn in voluntary payments made between 2000 and 2017. But that is still peanuts compared with the vast sums governments normally deal with.
The rich are not necessarily being hypocritical in not writing their governments bigger cheques. Total government expenditure in the UK runs at about £1tn a year. Making a dent in that is difficult, no matter how wealthy you are. The richest people in the country — industrial tycoons the Hinduja brothers, who together are worth an estimated £28.5bn — would only be able to foot the bill for about a third of the UK’s annual spending on education, if they sold all their assets.
In the US, even Elon Musk would not have a huge effect on government coffers: if he gave all his wealth away, he would only add about 3 per cent to expenditure for a year. Famously, in the early 20th century, John D Rockefeller — who was probably the wealthiest private individual in history — could have paid off the entire US national debt.
For this and other reasons — such as a belief that governments are inherently inefficient, wasteful or corrupt — the rich often choose to give their money to good causes instead. Chuck $500mn at the US government and it is a rounding error. Pledge the same amount to cure malaria and you might make a real difference. Indeed, Andrew Carnegie’s legacy is still with us today, mainly in the form of libraries he paid for. This probably would not be the case if he had given money to the US Treasury.
But, even with such super-rich individuals, funding the state in big economies would only appear to work as a collective, compulsory endeavour. The mood among the wealthy might be changing, however, even in lower-tax nations. When Donald Trump was elected US president, many rich liberals joked that, much as they disliked him, they were in a “heads we win, tails we win” position. A common smug refrain from rich New Yorkers was: “I won’t vote for your tax cuts, but I’ll take them.” Now, by contrast, we have millionaires writing open letters that say: “It’s taxes or pitchforks. Let’s listen to history and choose wisely.”
Enlightened self-interest, perhaps, but it is telling that the very rich are speaking out. At a meeting of the Patriotic Millionaires — an American group founded in 2010 that wants the rich to pay more taxes — Abigail Disney, an early believer in this cause, said: “The only people billionaires will listen to are other billionaires and multimillionaires. And, if they won’t listen, there are their children and their wives, and they will listen.”
Rhymer is reading . . .
The Employees, by Olga Ravn. Set on a 22nd-century spaceship and presented as a series of reports on strange artefacts, the novel is a satire on modern, productivity-fixated workplaces.
Follow Rhymer on Twitter @rhymerrigby
This article is part of FT Wealth, a section providing in-depth coverage of philanthropy, entrepreneurs, family offices, as well as alternative and impact investment