A wealth of evidence
Plus: debunking MMT and a defence of lunchtime drinks
In today’s newsletter:
The case against the wealth tax
Bank Rate holds
Britain is poorer than it thinks
Four years ago, a colleague asked me whether I could chair a debate with a chap called “Gary Stevenson”, a YouTuber and self-styled “inequality economist” who I had never heard of. It was a good-natured debate, which I’d describe as a mix of amicable disagreement and talking past each other. Stevenson was clearly a man on a mission: a single-issuer, whose One Big Idea was that spiralling wealth inequality was destroying the country, and that it had to be stopped, perhaps with a wealth tax of some kind.
I didn’t buy his diagnosis of Britain’s problems, and if I had bought it, I still wouldn’t have bought his prescription.
But either way – at the time, I didn’t give these issues much further thought, and pretty much forgot about that debate the moment the recording stopped. Left-wing social media influencers are legion, and there was nothing particularly unusual about Stevenson’s “the bankers the bonuses the bankers the bonuses” politics. The wealth tax, meanwhile, struck me as an obscure niche topic. Who cares about wealth taxes? That’s a 20th-century idea, which, today, is only of interest to a few tax nerds.
Or so I thought in 2022. But it turns out that four years is a long time in the policy ideas space. Today, Gary Stevenson is a social media superstar with more than 1.5 million YouTube subscribers and a bestselling book; the wealth tax enjoys the support of three quarters of the public; and Zack Polanski, who adopted the wealth tax as his flagship policy, is the most popular political leader with Millennial and Zoomer voters by quite a margin. Far from a “niche topic”, the wealth tax has become the policy idea of the hour. A massive hype has developed around it.
But as I show in my new IEA report Fool’s Gold: The case against the wealth tax, and suggestions for alternatives, it is a completely undeserved hype. Wealth taxes come with major intrinsic problems, and there are good reasons why so many countries have previously abandoned them. Creating a buzz around them now, and marketing them as “cool”, does not change the economic arguments.
Nonetheless – the wealth tax is not an idea we should lightly dismiss. There are good reasons why it was previously abandoned, but there are also good reasons why people of very different political persuasions were once attracted to it. Debunking the weak, slopulist arguments for wealth taxes would be shooting fish in a barrel, but as is customary for IEA publications, my paper does not take the easy way out. It uses “steelmen” rather than strawmen, and addresses the strongest possible arguments for a wealth tax.
Even the steelman, though, is not all that steely in the end, and shatters upon contact with the available alternatives.
Kristian Niemietz
Editorial Director
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IEA Podcast: Director of Communications Callum Price is joined by Senior Policy Fellow Lord Frost and Editorial Director Kristian Niemietz to discuss the Bank of England’s latest update, wealth taxes, and tumble dryers - IEA YouTube
New Paper: the Case Against the Wealth Tax
The UK raises more revenue from wealth and wealth-related taxes as a share of GDP than any other OECD economy — ahead of Spain, Norway and Switzerland, the only three European countries that still have a formal wealth tax
Wealth taxes have been tried across Western Europe and repeatedly abandoned — even by left-wing governments — because of high administrative costs, weak revenue and damaging effects on investment
Wealth inequality is lower today than at almost any point in the 20th century. The wealthiest 1% own around 22% of total wealth — below the EU average of 25% and well below the US figure of over 35%.
To reduce wealth inequality further, Britain should enable more people to create it rather than tax it more — through Australian-style pension reform and a YIMBY housing revolution that would extend property ownership to millions
Britain raises more from wealth taxes than any other rich nation, The Telegraph
Major warning issued over calls for UK to impose wealth tax, The Express
NEW REPORT: Britain Has Highest Wealth Taxes in OECD, Guido Fawkes
The Wealth Tax Delusion: The Policy That Promises Everything and Delivers Nothing, Kristian Niemietz debates the wealth tax with Arun Advani, IEA YouTube
Weakness in broad money growth should help keep rates on hold
Commenting on the Bank of England’s decision to hold interest rates, Julian Jessop, Economics Fellow at the Institute of Economic Affairs said:
““The Bank of England was right to keep interest rates on hold today. There is huge uncertainty, reflected in the three different scenarios discussed in the accompanying Monetary Policy Report. But the Committee has judged that the upside risks to inflation from higher commodity prices are being offset, at least for now, by the weakness of the labour market and the downside risks to economic growth.
“The Bank now expects CPI inflation to dip from 3.3% in March to 3.0% in April, then rise again to peak at a little over 3.5% in the autumn. That should just about be low enough to keep interest rates on hold, especially with unemployment forecast to pick up again too.
But there is one other factor which deserves more attention. This is that growth in broad money supply is also relatively subdued, especially compared to the surge which fuelled the inflation spike in 2022.
“The Bank’s latest Monetary Policy Report does at least note that the ratio of broad money to nominal GDP has fallen further below its pre-pandemic trend. However, none of the MPC members mention this in their comments.”
News and Views
Hold interest rates, says IEA’s Shadow Monetary Policy Committee
With money growth stable, there is no good reason to adjust anything.
The Institute of Economic Affairs’ Shadow Monetary Policy Committee (SMPC) voted 8-1 to hold Bank Rate. One member voted to raise rates by 25 bps.
SMPC members felt that current money growth levels were satisfactory and should be maintained.
A group of independent economists that shadow the Bank of England has called for interest rates to be held. This comes in the context of the Bank’s Monetary Policy Committee (MPC) decision about interest rates this week (Thursday April 30th).
The Shadow Monetary Policy Committee, hosted by the free market think tank the Institute of Economic Affairs, has in the past criticised the Bank for paying insufficient attention to money growth and its implications for the outlook for inflation. In 2021, the SMPC made one of the earliest calls for the Bank to start raising interest rates and criticised the Bank’s forecasts for understating the threat of inflation. Subsequently, the SMPC was concerned that money growth rate allowed to fall negative (although to some extent that returned the level of money to that implied by its pre-Covid growth trend).
The British public doesn’t understand how poor we really are, IEA research covered in The Telegraph
“A deeply worrying chart from the Institute of Economic Affairs (IEA) reveals that, on the whole, the public wildly misunderstands how businesses operate. They don’t understand public services, either. According to polling conducted on the IEA’s behalf by Freshwater Strategy, the British public believes energy companies enjoy an average profit margin of 57pc. The true figure is closer to 5-15pc. They believe that supermarkets and airlines are gouging us for a 50pc margin, despite the fact food and drink are relatively inexpensive in the UK compared with our European cousins, and flights are comically cheap.”
Why Don’t Governments Just Print More Money? Chris Snowdon interviews Emmanuel Maggiori on modern monetary theory, IEA YouTube
It’s time to say adios to the inheritance tax, IEA research on the IHT reference in CapX
As the Institute of Economic Affairs argues in its recent paper ‘A Taxing Inheritance’, IHT is not merely unpopular but economically harmful – arbitrary, distortionary, and an obstacle to entrepreneurship and international competitiveness.
COVID Was the Biggest Event Since WW2 — And We’ve Learned Nothing, Chris Snowdon interviews Roger Bate, IEA YouTube
There’s a reason that taxes are at crippling levels and public spending is out of control: Voters, Lord Hannan outlines why he is quitting party politics to lead the IEA, The Telegraph
Think-tanks are there to change minds, to create a climate where politicians can act – and only then to write the detailed plans for them. “We will not solve our problem by electing the right people,” said Milton Friedman, a stalwart of the IEA throughout the 1970s. “We will only solve our problem by making it politically profitable for the wrong people to do the right thing.”
In defence of lunchtime drinks, Chris Snowdon on how Green MP Hannah Spencer’s viral video reveals Britain’s growing American-style prudishness about alcohol, The Critic
Class war is the enemy of good economics, Mani Basharzad writes in CapX
Events and Opportunities
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