WTF?! ...Is inequality?

I have been looking at how wealth accumulates, how ownership creates more ownership, and how the gap between people who live from their work and people who live from their assets keeps getting wider.

The more I have looked at it, the more I have realised that most conversations about inequality are confused before they even begin.

People mix up income and wealth. They talk about a consultant earning £200,000 as though they are economically comparable to somebody sitting on a £2 billion fortune. They talk about taxing “the wealthy”, but then immediately start worrying about doctors, small-business owners and somebody’s fictional grandmother living in a draughty mansion she cannot afford to heat.

Meanwhile, the genuinely vast fortunes barely enter the conversation.

So, WTF is inequality?!

At its simplest, inequality is the gap between what different people have. But that definition does not tell us much, because some degree of difference will always exist. Some people earn more, some save more, some inherit money, some build successful businesses, and some spend every spare penny financing a car that sounds like a lawnmower being attacked by a bear.

The problem is not that everybody has a different number in their bank account.

The problem is when the gap becomes so large that money stops being merely something you spend and starts becoming a machine that generates more money, more influence and more control. At that point, we are not talking about one person having a nicer holiday than another. We are talking about fundamentally different relationships with the economy.

One person has to keep working to remain wealthy. Another person can stop working entirely and become richer each year simply because of what they already own.

Those people are not standing on different rungs of the same ladder. They are in different buildings

Income is a tap. Wealth is a reservoir

The first mistake in almost every conversation about taxing wealthy people is that income and wealth are treated as though they are the same thing.

Income is money flowing in over a period of time. It includes salary, business profits, dividends, rent and interest. Wealth is what you already own after deducting what you owe: property, investments, land, businesses, cash and other assets, less mortgages and debts.

Income is the tap. Wealth is the reservoir behind it.

Someone earning £250,000 a year has a high income. They are likely to be comfortable, although perhaps slightly less comfortable than the headline number suggests once tax, mortgages, childcare, school fees and a lifestyle that now apparently requires three types of fridge are taken into account.

But that person is not necessarily ultra-wealthy. They may have a large mortgage, limited savings and a lifestyle heavily dependent on their continued employment. If their income stops, their financial position gradually deteriorates. They still need to keep turning up.

Now compare them with somebody who owns £200 million of assets. That person does not need to earn their fortune again every year. Their existing fortune earns on their behalf. At a 5% annual return, £200 million generates £10 million of growth in a single year. They could spend £1 million during the year and still finish £9 million richer than when they started.

This is why endlessly adjusting income-tax bands will not solve extreme wealth inequality.

We can increase tax on salaries, push more people into additional rates, and collect more from professionals and successful business owners. That may raise revenue, but it does not directly address the hundreds of millions or billions already sitting in shares, land, investment funds, trusts and private companies.

High-income people and ultra-wealthy people may occasionally be the same people, but they are not the same economic group.

A surgeon earning £200,000 is not in the same position as somebody whose assets rise by £20 million while they sleep. A successful accountant with a decent pension is not comparable to a family that has owned tens of thousands of acres for several centuries. Somebody who sold a business for £5 million is not operating in the same world as somebody who could lose £5 million behind a sofa and decide it was not worth looking for.

Grouping all these people together is extremely useful for the genuinely ultra-wealthy. Mention a wealth tax and they can immediately hide behind doctors, dentists, entrepreneurs and somebody’s elderly aunt.

The debate becomes about whether ordinary success is being punished rather than whether enormous accumulated fortunes should make a greater contribution.

Britain is unequal, and the numbers probably understate it.

Official figures from the Office for National Statistics suggest that the wealthiest 10% of households hold around 41% of household wealth in Great Britain. The wealthiest 1% hold roughly 10%, while the least wealthy half of households hold about 9% between them.

Even those figures should be treated cautiously.

Surveys of household wealth have a fairly obvious weakness: the richest people are not always easy to find, and they are not necessarily enthusiastic about completing a detailed questionnaire explaining the ownership structure of their trusts, companies, property portfolios and offshore investments.

Research from Warwick and others has argued that survey-based statistics substantially underestimate both the amount owned at the top and the overall concentration of wealth.

In other words, the official picture already shows a deeply unequal distribution, and the real picture may be worse.

To give the numbers some context, median household wealth was estimated at approximately £294,000 in the ONS’s 2020–22 data. The £20 million threshold proposed later in this article is around 68 times that amount.

A person with £20 million is not merely “doing quite well”. They do not have a slightly larger pension or a nicer kitchen than the average household. They hold wealth equivalent to the total net assets of dozens of ordinary families.

That does not make them evil, but it does make them different.

The great compounding machine

The greatest advantage of having money is not that you can buy better things. It is that money creates more money.

Take £20 million invested at an average annual return of 5%. After 20 years, assuming the return compounds and no money is added, the original £20 million becomes just over £53 million.

Now take £20,000 invested at the same rate for the same period. That becomes just over £53,000. The percentage return is identical. The length of time is identical. The result is not remotely comparable.

The person starting with £20,000 has gained around £33,000. The person starting with £20 million has gained around £33 million.

This is compounding.

It is normally explained using a cheerful chart in a pension brochure, showing how putting away £150 a month might eventually allow you to retire with enough money to pay the gas bill and buy biscuits from the branded aisle. But compounding becomes much more powerful when the starting figure already contains seven, eight or nine zeros.

The ultra-wealthy also have access to a completely different range of investments. An ordinary saver may have cash, a workplace pension, perhaps an ISA and some equity in their home. Someone with hundreds of millions can invest in private equity, development land, commercial property, venture capital, infrastructure, private credit and companies that never become available to ordinary investors.

They can spread risk across countries, currencies and asset classes. They can pay for the best legal, financial and tax advice. They can borrow against their assets rather than selling them. They can wait ten years for an investment to pay off without worrying about whether the boiler will survive February.

Most importantly, they can afford not to panic.

When markets fall, ordinary people may have to sell. They lose their job, their mortgage increases, their business struggles or they need cash for an emergency. The ultra-wealthy can often do the opposite. They can buy assets cheaply from people who need money immediately. This means downturns can widen inequality rather than reduce it. People with weak finances are forced to sell at the bottom, while people with strong finances acquire more assets at discounted prices.

None of this requires a conspiracy or a room full of billionaires stroking white cats. It is simply what happens when the people with the most money have the greatest ability to wait, diversify and take advantage of opportunities. The machinery naturally rewards those who already own the most.

Then asset prices join the party

Large fortunes need somewhere to go.

Once somebody has paid for their home, cars, holidays and obligatory temperature-controlled wine room, the remaining money is generally invested. It flows into shares, property, land, private companies, infrastructure, bonds, art and anything else that may preserve value or produce a return.

When large amounts of capital compete for scarce assets, prices tend to rise. That is excellent news when you already own those assets. It is less helpful when you are trying to buy them for the first time.

The Bank of England has previously explained how policies such as quantitative easing raise government-bond prices and encourage investors to move money into other assets, including shares and corporate bonds. Low interest rates have also supported higher property and asset values.

Inequality is not the sole explanation for rising asset prices. Housing supply, planning restrictions, monetary policy, international investment, population changes and interest rates all matter. Economics is rarely a murder mystery where one suspicious-looking butler committed every crime. But wealth concentration determines who benefits most when assets rise.

A homeowner sees their equity increase. A renter sees the deposit they need moving further out of reach. A landlord owns an asset producing rent and long-term capital growth. A tenant receives an email beginning, “Unfortunately, due to current market conditions…”

The owner of shares benefits when the market rises. The person without spare capital is told that investing is the key to freedom, normally by somebody filming a 37-second video while leaning against a rented Lamborghini.

This creates a feedback loop. Existing owners become wealthier as asset values rise. Their increased wealth allows them to purchase more assets. That demand pushes prices higher, making it harder for new entrants to buy without more debt or family support. Eventually, ownership becomes less dependent on what you earn and more dependent on whether your family owned assets before prices increased.

The easiest route to becoming wealthy is increasingly to have wealthy parents , which is an unusual interpretation of meritocracy

Why is inequality actually bad?

At this point, someone will usually claim that worrying about inequality is simply jealousy. It is not. I am not jealous of people with tropical diseases, but I am still in favour of reducing tropical diseases.

The objection to extreme inequality is not that one person has a larger television than another. It is that extreme concentrations of wealth distort opportunity, political influence, economic activity and public trust.

It damages genuine opportunity

People do not begin from the same starting line. Someone from a wealthy family can take an unpaid internship, move to an expensive city, start a business, survive that business failing and try again. They can receive help with a house deposit, access better educational opportunities and wait for the right job rather than accepting the first one available.

Someone without family wealth may have to take whatever work pays immediately because the rent is due on Friday. They cannot spend two years building a business without income because their landlord has demonstrated limited interest in being paid in entrepreneurial potential.

Both people may be intelligent. Both may work hard. Both may have good ideas. Only one is allowed to fail safely.

This is why extreme inequality undermines the idea that economic outcomes are simply a reflection of effort or ability. The amount of risk a person can take depends heavily on the cushion underneath them.

It turns economic power into political power

Money does not only buy houses, cars and private islands. It buys access. It funds lobbying, political donations, advertising, research organisations, legal challenges, media outlets and campaigns. It gives an individual the ability to keep an idea in the public conversation long after everybody else has run out of money.

We may formally operate on the basis of one person, one vote. But one person with one vote, four newspapers, a television station, a social-media platform and several million pounds available for political donations is participating rather differently.

This does not mean wealthy people should be excluded from politics. It means we should recognise that extreme wealth produces influence that ordinary voters cannot match.

When wealth becomes heavily concentrated, political influence tends to follow it.

It can weaken the economy

Extreme inequality is not merely a question of dividing an existing pie. It can affect how successfully the economy functions.

The IMF has warned that excessive inequality can damage social cohesion, increase political polarisation and weaken sustainable long-term growth. OECD research has also identified a relationship between inequality and poorer economic performance, particularly where lower- and middle-income households fall behind. That is not surprising.

A functioning economy depends on millions of people being able to consume, invest, develop skills, start businesses and take calculated risks. When large numbers of households spend most of their income on housing, energy, childcare and debt, they have very little left to spend elsewhere.

You cannot run an economy indefinitely by selling increasingly expensive assets to an increasingly small group of people. Eventually, somebody needs to buy actual goods and services.

It corrodes trust

Most people will tolerate significant differences in income and wealth when they believe the system is broadly fair. They are less enthusiastic when nurses pay tax automatically through PAYE each month while somebody with a £300 million portfolio has a team of advisers explaining that their gain technically arose in a structure owned by another structure located somewhere with palm trees.

A society can cope with some people being much richer than others. It struggles when wealth appears detached from contribution, responsibility and any meaningful obligation to the country that protects it.

Capitalism needs limits on excessive concentration for the same reason football needs rules preventing one team from owning both goals. Without those rules, it stops being competition and becomes property management.

So what would a wealth tax actually do?

The proposal is relatively simple: an annual tax of 2% on net wealth above £20 million. That does not mean 2% of everything somebody owns. It does not mean 2% of their salary, and it does not mean tax is charged from the first pound. It means 2% of the amount above £20 million.

Assuming the threshold applies to an individual, somebody worth £19 million would pay nothing. Somebody worth £21 million would pay 2% of £1 million, which is £20,000.

Someone worth £50 million would pay 2% of the £30 million above the threshold, producing a bill of £600,000. Someone worth £200 million would pay 2% of £180 million, or £3.6 million. A billionaire would pay 2% of the £980 million above the threshold, producing a liability of £19.6 million.

These are large tax bills because these are large fortunes.

Return to the person with £200 million earning 5% on their assets. Their wealth has increased by £10 million during the year. After paying a £3.6 million wealth tax, they have still gained £6.4 million before allowing for spending and other taxes. They remain extremely wealthy. Their lifestyle is not under serious threat. Nobody is towing away the yacht while they sleep. They are simply becoming wealthier slightly more slowly. That is partly the point.

A wealth tax is not only intended to raise revenue. It acts as a brake on the automatic concentration of wealth. Not a handbrake, admittedly. More one of those irritating speed bumps positioned outside a school.

What would count as wealth?

For the tax to work, it would need to apply broadly.

Relevant wealth would include property, land, shares, investment funds, private-company interests, cash, bonds, valuable art and other substantial assets. Beneficial interests in trusts and similar arrangements would also need to be included, because otherwise the entire tax base would disappear into trusts before the legislation had finished printing.

Debts would be deducted, because the tax should apply to net wealth. A person owning a £20 million building with £19 million of genuine borrowing is not in the same position as somebody holding £20 million in cash.

One of the more complicated areas would be private businesses. A founder might own shares notionally worth £50 million without receiving millions in cash each year. That does not mean the shares should be excluded. If private-company wealth is ignored, every billionaire in Britain will become a deeply concerned and tragically illiquid entrepreneur by lunchtime.

But sensible payment arrangements could be introduced. Tax might be deferred until shares are sold. Bills could be paid in instalments. In limited circumstances, the government could potentially accept a small equity interest instead of forcing an immediate sale. These are practical design issues, not reasons to abandon the tax.

Private businesses are already valued during company sales, divorces, investments, insurance claims, probate disputes and inheritance planning. Assets only seem to become completely impossible to value when somebody suggests taxing them.

How much would it raise?

The honest answer is that nobody can know the precise amount until the detailed rules are written. The revenue would depend on whether the threshold applied to individuals or households, which assets were included, how trusts were treated, what anti-avoidance rules were introduced, how businesses were valued and whether certain payments could be deferred.

Anyone offering a number accurate to the nearest pound is either guessing or wearing an exceptionally shiny suit. However, existing research allows us to estimate a sensible range.

Modelling produced for the Wealth Tax Commission suggested that an annual tax of roughly 1.12% on wealth above £10 million could raise around £10 billion under its lower-avoidance assumptions, using wealth data from 2016–18.

A more recent proposal associated with economist Arun Advani and promoted by Tax Justice UK estimated that a 2% tax on wealth above £10 million might raise approximately £24 billion annually after behavioural responses.

The proposal here uses a higher threshold of £20 million. That would reduce both the number of taxpayers and the revenue raised, but it would not necessarily cut the revenue in half because wealth is heavily concentrated at the very top. Much of the taxable wealth is held by people far beyond either threshold.

Based on those models, a reasonable working estimate for a 2% annual tax above £20 million would be somewhere in the region of £15 billion to £20 billion a year.

A central estimate of roughly £17 billion annually seems defensible.

That is not an official Treasury forecast, and it should not be presented as one. Any government introducing the policy would need to update the modelling using current administrative records and detailed asset data.

Still, £15 billion to £20 billion is not an insignificant amount. It equates to roughly £290 million to £385 million every week.

It would not solve every problem facing the country, but perhaps we can retire the idea that it is loose change found down the back of the national sofa.

But won’t all the wealthy people leave?

Some will. Anyone claiming that absolutely nobody would leave is selling a different flavour of nonsense from the people predicting that Mayfair will be completely abandoned by Tuesday afternoon.

Taxes affect behaviour. The important questions are how many people would leave, how much tax would be lost, which assets and businesses would actually move, and whether the policy would still raise substantial revenue after those responses.

The available evidence does not support the usual mass-exodus pantomime.

Research by the London School of Economics involving people in Britain’s top 1% by income or wealth found that family, careers, culture, education, healthcare and social connections were powerful reasons to remain in the UK. Tax mattered, but it was rarely the only consideration and often was not decisive.

Research into changes to the UK’s non-dom rules has also found more limited migration responses than dramatic newspaper headlines might suggest.

Studies of wealth taxes in Sweden and Denmark did find that taxation affected the movement of wealthy individuals, but the estimated effects were relatively modest. A one-percentage-point increase in the top wealth-tax rate was estimated to reduce the long-term number of wealthy taxpayers by less than 2%, with relatively small wider effects on employment, investment and economic output.

So, yes, there would be some reaction.

No, the country would not be left with one confused barista and several thousand abandoned mansions.

Wealthy people have lives. Their children attend schools. Their partners have careers. Their businesses employ people. Their families and friends live nearby. They benefit from British courts, universities, culture, financial markets and professional services.

Moving an entire life to save tax is more complicated than changing broadband provider. It is also worth considering who often supplies the most dramatic warnings about wealthy people leaving: wealth managers, tax advisers and relocation consultants. These are all respectable professions, but their services become considerably more valuable when wealthy clients are frightened. Nobody asks a dentist whether Britain needs more fillings and assumes the answer is completely disinterested.

Design the tax properly and the leaving threat becomes weaker

A serious wealth tax would need rules preventing somebody from moving abroad shortly before the assessment date and immediately escaping the charge.

Possible measures could include a departure charge, a continuing liability for a fixed period after leaving, or permanent taxation of UK property and land regardless of where the owner lives.

Many countries already use versions of exit taxation. It is not especially revolutionary to say that gains and wealth accumulated while somebody benefited from a country’s infrastructure and legal system should not disappear from the tax base following a strategically timed photograph from an airport lounge.

Anti-avoidance rules would also be essential. These would need to cover trusts, foundations, connected companies, artificial debts and transfers between spouses or family members.

HMRC would also need proper funding, experienced staff and access to reliable information.

There is little point announcing a tax aimed at people with twelve lawyers and then sending one exhausted civil servant armed with Excel 2007.

Why are some billionaires supporting the far right?

This part needs to be handled carefully. Not every billionaire supports the far right. Not every person supporting a right-wing party is motivated by tax. And there is no publicly available memo called “Operation Distract the Peasants”.

What we can observe is an increasingly visible alignment between some extremely wealthy individuals and nationalist, populist or far-right political movements.

Elon Musk publicly expressed support for Germany’s AfD. French billionaire Vincent Bolloré has used his media empire to promote a harder-right political agenda and closer cooperation between the traditional right and Marine Le Pen’s movement. In Britain, Reform UK has received very large individual donations, including a reported £9 million donation from Christopher Harborne.

The motivations will not be identical. Some wealthy supporters genuinely share the ideology. Some oppose regulation. Some want lower taxes. Some want political influence. Some may simply have reached the level of wealth where buying another house becomes repetitive, so they decide to purchase a political movement instead.

But the alignment is politically useful because far-right politics is extremely effective at redirecting legitimate economic anger.

People are right to be angry. Housing is expensive, wages have often struggled to keep pace with living costs, public services are under pressure, and many younger people cannot imagine buying the kind of home their parents purchased on ordinary incomes.

The important question is where that anger is directed.

It can be directed upwards, towards concentrated ownership, monopoly power, tax avoidance, political influence and fortunes so vast that they have almost no relationship with work.

Alternatively, it can be directed sideways or downwards: towards migrants, benefit claimants, minorities, civil servants, university students, “woke” museums, or some unfortunate person trying to use a gender-neutral toilet.

Anything, essentially, except the ownership structure of the economy. This does not require a coordinated conspiracy. It only requires aligned incentives.

A billionaire does not need to attend a secret meeting and agree to divert the public’s attention. They only need to support political movements that focus public anger on cultural enemies while leaving the concentration of wealth largely untouched.

It is the political equivalent of shouting “Look over there!” while reversing a lorry into the vault.

Wealth taxes are becoming popular

Polling conducted by YouGov for Oxfam in March 2025 found strong public support for higher taxes on the very richest, including support for a 2% tax on net wealth above £10 million.

That creates a problem for people who do not want wealth taxed.

The old argument that wealth taxes are merely the product of seven communists meeting in a pub becomes harder to sustain when large majorities support them. So the argument changes.

First, we are told that assets are impossible to value. Then we are told that everybody will leave. Then we are told that the country depends entirely on a small number of billionaires waking up each morning within the M25.

Eventually, we are told that taxing enormous fortunes will somehow damage ordinary workers more than continuing to tax wages, spending and smaller businesses.

Ideally, before anyone examines those claims too closely, the conversation moves to a boat, a flag, a statue or a cartoon.

Culture wars are cheap. Wealth taxes are not.

That makes culture wars an excellent investment.

Isn’t this punishing success?

No. Success is not a protected tax category.

We tax employees with higher salaries more than employees with lower salaries because they earn more. We tax profitable companies more than loss-making companies because they have profits. We charge more tax on larger transactions because the amounts involved are larger.

A wealth tax does not say creating value is bad. It says that once private wealth reaches a level far beyond any plausible personal need, continued access to the society protecting that wealth comes with an additional contribution.

Nobody creates a £500 million fortune alone. They rely on educated workers, roads, courts, limited-liability laws, banks, energy networks, police, stable currency, contract enforcement and customers whose ability to spend often depends on public services and public investment.

Even the most talented entrepreneur is operating inside a system built and maintained by millions of other people.

The completely self-made billionaire is rather like the completely self-made lasagne.

Someone built the kitchen.

A wealth tax is not the whole answer

A 2% annual tax above £20 million would help slow the compounding of the largest fortunes. It could raise substantial revenue and make the tax system less dependent on earnings and everyday spending. But it would not solve inequality on its own.

The UK would still need to examine capital-gains tax, inheritance tax, property taxation and the taxation of income generated from assets. It would need better housing policy, stronger competition rules, broader employee ownership, investment in public services and more effective enforcement against avoidance.

It would also need to stop treating every tax relief as a treasured family pet that cannot possibly be put down, regardless of whether anyone remembers why it was introduced.

A wealth tax is one part of a broader rebalancing. But it is an important part because it deals directly with the accumulated stock of extreme wealth.

Income taxes collect water from the tap. A wealth tax deals with the reservoir.

The actual WTF

The radical position is not suggesting that someone with £200 million should pay 2% of the portion above £20 million.

The radical position is believing that fortunes can compound indefinitely, ownership can become increasingly concentrated, asset prices can move further away from wages, and democracy will remain completely unaffected.

A 2% tax above £20 million would not abolish wealth, entrepreneurs, ambition or success. It would not leave billionaires queuing outside Greggs asking whether anybody has a spare loyalty stamp.

It could raise somewhere in the region of £15 billion to £20 billion a year while slowing the automatic concentration of economic power.

The wealthy would remain wealthy. Successful people would remain successful. Britain would remain open for business. It might simply become slightly less open for extraction.

And that is the real answer to the question: what the f*** is inequality?!

Inequality is not simply that one person has more than another. It is what happens when having more becomes the most reliable way of getting even more, and when the people who benefit most from that arrangement gain enough influence to convince everybody else that changing it would be terribly unfair.

The WTF is not that anyone wants to tax fortunes above £20 million. The WTF is that we have built a machine that compounds wealth faster than opportunity, called the result meritocracy, and then acted surprised when people became angry!

Lloyd

The Finance Guy