Tax wealth to invest in social and physical infrastructure

MARCH 31, 2025

Özlem Onaran outlines what ought to be the economic priorities of the Labour Government.

The expected outcomes of the Chancellor’s Spring Statement were assessed by the Resolution Foundation to mean nothing less than a deep recession for the bottom half of society by the Resolution Foundation. The Government’s own impact assessment shows that changes to social security are likely to result in an alarming 250,000 more adults and 50,000 children being pushed into poverty. The largest group affected by the changes will be single women, who make up 44% of those losing out, at an average of £1,610 a year, according to the Women’s Budget Group. But these assessments contain nothing on the impact on carers, nor the likely impact on people who may have to drop out of the workforce to pick up the care of people whose benefits have been cut, most of whom will be women.

This latest set of cuts comes on top of the negative aspects of the Chancellor’s 2024 budget, which failed to undo some of the punitive measures introduced since 2010, including  the two-child limit, the benefit cap and tougher sanctions for those on benefits. Meanwhile, more unfavourable headwinds internationally mean there will be a need for more cuts and/or tax increases in autumn 2025.

Against this backdrop, the best way to strengthen the UK economy and its resilience to these threats is to repair the UK’s crumbling social infrastructure and maintain our spending on foreign aid, as opposed to imposing spending cuts.  

An economic alternative needs to be structured around public provision of universal basic services in health, social care, disabled care, childcare, education and public investment in housing, public transport and renewable energy.  This public investment push would drive  new employment opportunities with decent pay attached. This full-employment targeting fiscal policy in combination with a revamped genuine Employment Rights Bill, adequate decent income support for special needs – disability, unemployment, parental leave – and an end to punitive sanctions would have been the adequate basis for welfare reform.

A green, red and purple transition

What’s required is a paradigm shift towards a needs-based approach to policy. We should start by asking: How many care workers are needed to meet the UK’s demographic needs, with decent pay for these key workers involved?

Instead of erecting a false competition between different public spending needs, we should recognise that they are complementary. All policy tools need to be utilized and all means of funding be mobilized, with an effective coordination across fiscal, monetary, industrial, labour and social policies.

How can this be funded? Public investment will generate new employment, resulting in an increase in total income and correspondingly more tax revenues, even without any increase in tax rates.

However; at the core of the funding drive for a big push in public investment lies  progressive taxation on both income and wealth.

On borrowing, we need to widen the definition of infrastructural investment and relax the Chancellor’s self-imposed fiscal rules. A national investment bank, networked with public and cooperative banks, should be created.

As for monetary policy, the key aim should  be to accommodate full employment targeting fiscal policy, and targeting inflation should be subordinated to that, with an inflation target around 4 to 5%, rather than as low as possible. The Bank of England should buy government bonds in primary markets if needed: in short, monetary policy should accommodate an expansionary fiscal policy.

The Government should bring in a progressive wealth tax on the top 1%, starting with a marginal tax rate of 1% reaching to 4% for the top 0.1% on their net wealth including all assets (minus liabilities).

As our research at the University of Greenwich illustrates, if we taxed those individuals with above £2.2 million net wealth (the top 1%) at a marginal rate of 1%, and those with above £3.6 million (the top 0.5%) at a marginal rate of 2%, and those with above £11.2 million (the top 0.1%) at a marginal rate of 4%, we would raise £46 billion, if 50% of the tax is avoided, £69bn if 25% is avoided, and £78 billion, if 15% of the tax is avoided.

That is equivalent to  8-12% of total tax revenues taken by the UK government in a year. This would increase the average effective tax rate on wealth to 1.37% from 0.99% (by an increase of 0.38% point).

Alternatively, a flat tax rate of 1% on the top 1% wealthiest individuals would raise £17bn, if 50% were avoided, £25bn if 25% were avoided, or £28bn, if 15% were avoided.

We should start campaigning on this now, as the Chancellor may in any case need to increase tax rates in the autumn 2025 given the global turmoil.

This needs-based approach would see urgent and largescale public investment leading the way. The priority would include ‘purple’ care infrastructure: education, childcare, healthcare and social care, and a recognition of this as social infrastructure, with direct and indirect productivity effects, for example effects on the future labour force, the social fabric and freeing the unpaid domestic care workers, most of whom are women.

Other infrastructure investment would be  social housing, hospitals, schools, nurseries and care homes, alongside the green economy: renewable energy, energy efficiency, public transport, organic agriculture and forestry.

These priorities should be embedded in a democratic, participatory plan, at least covering the key sectors. At its heart should be publicly owned enterprises (central, local, cooperatives),  and democratic, participatory decision-making by workers and users of their services.

 Özlem Onaran Is Professor of Economics, Co-Director of  Centre of Political Economy, Governance, Finance and Accountability and Associate Head of the School of Accounting, Finance & Economics – Research and Knowledge Exchange at the University of Greenwich. This article is an edited version of a speech she made at this weekend’s Socialism or Barbarism event, organised by Arise- a festival of Left Ideas on 29 March 2025.

Image: c/o Labour Hub.