Good morning from New Economy Brief.
Last week world leaders gathered at the World Economic Forum (WEF) in Davos to discuss global issues including geopolitical shocks, economic growth and living standards, and the just transition. As usual, wealthy investors and businesspeople were there too, rubbing shoulders with the politicians. So it’s no surprise that once again, wealth inequality was a hot topic in and around Davos this year – especially given the proximity of tech oligarchs to US President Donald Trump.
This week’s New Economy Brief looks at the state of extreme wealth, its consequences on democracy and what governments can do about it.
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The state of extreme wealth.
The ultra-rich have been accumulating wealth more and more quickly in recent years. According to Oxfam, their wealth has risen three times faster in 2024 than in 2023 (creating almost four new billionaires per week), while the number of people living in poverty has barely changed since 1990. Oxfam found that, on current trends, the world could have its first trillionaire this decade, while poverty won’t be eradicated for another 229 years.
How much is too much? A new report developed by the New Economics Foundation in partnership with Patriotic Millionaires International explores whether there is a “point beyond which the concentration of global wealth, such as income-generating land, properties, and financial assets, in the hands of relatively few people, is harmful – to individuals, to society, and to the environment.”
The researchers interviewed a cohort of policymakers and millionaires, who explored initial insights into the perspectives of key stakeholders in the establishment of a line. A third of the millionaires interviewed for the report thought such a line should be drawn at $10 million per person. The report follows an earlier report, Risks of Extreme Wealth, that identified seven ‘domains’ where extreme wealth poses a risk, ranging from democracy and the economy to the media and the environment.
“Extreme wealth is extreme control…” Further research from Patriotic Millionaires UK was also published last week: a Survation poll of nearly 3,000 millionaires from G20 countries. Nearly 70% of them believe that extreme wealth buys undue and disproportionate power, posing a threat to their countries' democratic stability that politicians lack the will to tackle. (Closer to home, the picture is similar – new Fairness Foundation polling found that nearly two thirds of Britons say the very rich have too much influence on politics.)
“...We must draw the line”. This year at Davos, a group of 370 of millionaires and billionaires from 22 countries signed an open letter to world leaders warning that extreme wealth is becoming so concentrated that the super rich have undue control over democracy: “A handful of extremely wealthy human beings control the media, which cajoles, persuades, and sometimes misinforms; they unduly influence our legal systems, transforming justice into injustice; and are helping manage our democracies into decline.”
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What can be done about it in the UK?
So the problem is well understood, but what about the solution? The signatories of the open letter mentioned above point to tax as the most politically feasible way to address extreme wealth inequality: “We have to draw the line and call time on extreme wealth. And you have to deliver that for all of us. Start with the simplest solution: tax us, the super rich.” (A reminder that 60% of billionaire wealth comes from either inheritance, cronyism or monopoly power; it is “taken, not earned”, in Oxfam’s words.) But few of the 3,000 millionaires who took part in the survey have much faith that political leaders are up to the task of tackling extreme wealth.
Tax wealth more. Tax Justice UK is campaigning for wealth taxes on the super rich, including a 2% tax on UK fortunes above £10 million to raise £24 billion a year for public services, as well as an end to British tax havens in places like the British Virgin Islands and Cayman Islands. The Fairness Foundation has a comprehensive evidence base on the harm extreme wealth does in the UK, as well as evidence on public attitudes towards both the problem and policy solutions. Their set of short briefings explains how wealth inequality obstructs each of the government’s missions - for instance, undermining productivity and growth by suppressing investment.
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What about in the international arena?
The geopolitical impact of Trump’s re-election has complicated international tax processes. One of the (many) Presidential Memoranda Trump issued last week confirmed that the US would not be participating in the OECD’s long-negotiated global minimum tax rate proposal. He outlined plans to require countries to essentially cede their tax sovereignty over multinationals operating within their borders – or face threats of sanctions for any measure that the US views as ‘extraterritorial’ or ‘disproportionately’ affecting US companies.
And the number of billionaire leaders of US multinationals attending Trump’s inauguration didn't go unnoticed. The OECD estimated the global minimum corporation tax would increase annual tax revenues by 9%, raising $220bn from multinational corporations worldwide - which now looks under threat.
Is the UN Tax Convention the best hope? At the end of 2024 the UN General Assembly passed a historic vote where countries overwhelmingly decided to begin a formal negotiation of a UN framework convention on international tax cooperation. For the next two and a half years, countries will work together to set new rules and standards relating to taxation of both corporations and ‘high-net worth individuals’.
Tax Justice Network’s (TJN) Alex Cobham called for countries like the UK, EU member states and others to “join together and work to defend each country’s tax sovereignty, by committing to ambitious and inclusive progress in the negotiations of the UN Framework Convention on International Tax Cooperation which begin in just two weeks.” TJN points out that the UK has so far acted as a ‘blocker country’ along with 8 others including the US, Israel and Argentina. So will the UK cooperate with others to strengthen international tax rules on the super rich and start to turn the tide on extreme wealth inequality? We’ll be keeping an eye out.
A new normal? More than 200 companies in the UK have now permanently switched to a four-day working week with no loss of pay for employees, according to the 4 Day Week Foundation.
The Future of Work. The final report of the Pissarides Review into the Future of Work and Wellbeing was released on Monday. It examines “the impacts of automation on the labour market” and proposes “a new model of human-centred automation” which focuses on the interconnections and interdependencies between technological transformation and socio-economic change.
UK Poverty 2025. Joseph Rowntree Foundation’s (JRF) annual state-of-the-nation report on poverty in the UK outlines the challenges the new government faces in trying to reduce “unacceptably high levels of poverty”. The authors find that it has been over 20 years since the last prolonged fall in poverty and warn that “economic growth on its own” won’t be enough to reduce it.
Ending the Global Debt Crisis. The Catholic Agency for Overseas Development (CAFOD) has published a new report marking the start of the 2025 jubilee year. In the Catholic Church a jubilee is a year in which debts are cleared. CAFOD’s report finds that 54 countries are in debt crisis, and sets out six policies to improve the debt system. These include new legislation to compel private creditors to offer timely and adequate debt relief to countries in crisis, and reforms to the International Monetary Fund.
Getting the bill for PFI. The National Institute for Economic and Social Research’s (NIESR) Max Mosley explores successive UK government’s use of the Private Finance Initiative (PFI) to partner with the private sector to build public infrastructure and services. He finds that PFI repayments on average are 3.3 times larger than the value of the asset they built, and eight companies (five of them registered in offshore tax havens) own 80% of all PFI school projects. Mosley concludes that a government thinking about reintroducing a PFI model to fund new infrastructure should consider whether the financial risks are worth it, and whether changing fiscal rules to provide more room for spending – perhaps by adopting a Public Sector Net Worth target – could be a safer way to fund much-needed investment.
