The case for G20 coordination on wealth taxes

Liam Byrne is the MP for Birmingham Hodge Hill and Solihull North. This essay is from the collection ​“Rethinking the UK’s role in a fractured world”, written by a cross-party group of MPs for the New Economics Foundation.

On Friday 25 September 2015, the world came together at the UN headquarters in New York and agreed to create a different kind of world. The Sustainable Development Goals (SDGs) agreed that balmy Friday offered a vision of a planet where prosperity is shared more fairly, security is strengthened, and every human being has the chance not merely to survive, but to flourish. Yet with 1,700 days to go before the SDG deadline, seven giants now block the path to progress: want, hunger, disease, lost learning, conflict, debt, and climate change. And the truth is, in recent years, these giants have not been cut down to size. Many are growing taller.

Tax codes are moral codes

The world does not lack the resources to blast a path forward. But those resources are increasingly concentrated in the hands of the richest. Indeed, over the last 40 years, wealth at the very top has grown dramatically faster than either wages or the wider economy. In Europe, the wealthiest 0.1% owned roughly 8.5% of total wealth in the mid-1980s; today they control around 11% ‒ almost four times the wealth held by the poorest half of society combined. But, in country after country, evidence now suggests that many ultra-high-net-worth individuals often face lower effective tax rates than ordinary workers and professionals.

Look no further than the tax return of the former UK prime minister, Rishi Sunak. Like all UK prime ministers, he published a summary of his earnings and the taxes he paid. His last declaration was extraordinary. A total of £2m in income. And a tax rate of just 23%. How? Because so much of his income was in the form of capital gains.

Tax systems are not merely mechanisms for raising revenue. Tax codes are moral codes. They express what a society believes about obligation, contribution, and fairness. Democratic legitimacy itself begins to fracture when citizens conclude that prosperity is no longer governed by reciprocity.

That is why the debate about wealth taxation is so important.

A G20 opportunity to lead

At the G20 in 2027, the UK has an opportunity to move this debate forward. This would be a statement of partnership to Brazil, which used its G20 to commission a report on the design of a global wealth tax, receiving the backing of all G20 countries at the time. It would also be a meaningful response to the initiative from the G20 presidency of South Africa, which commissioned leading experts, chaired by Joseph Stiglitz, to write on economic inequality. The UK ‒ respected for institutional design and coordination – could capitalise on this momentum and help solve the problem of designing a tax that both works and helps transform domestic resource mobilisation in countries both rich and poor.

Where taxes go wrong

Designing a wealth tax is harder than many advocates admit. The failures of earlier European wealth taxes offer important warnings. The question today is not whether wealth should be taxed more effectively. The question is how to do so in ways that are economically credible, administratively workable, and politically sustainable.

Fortunately, the emerging work led by Gabriel Zucman and the EU Tax Observatory points towards a new approach that is different from old models that failed.

Often these taxes had thresholds that were far too low. In Sweden and Norway, liability frequently began at levels equivalent to ordinary upper-middle-class housing wealth. This created predictable political resistance because households with valuable homes or small family businesses often lacked the cash flow to pay recurring annual taxes on paper wealth.

Second, governments managed this with exemptions and carve-outs. Business assets received special treatment. Unlisted shares were discounted. Family firms were partially exempted. Artwork and other holdings escaped valuation altogether.

The result was greater exposure for the broader middle class, while the genuinely ultra-wealthy increasingly structured their affairs to keep their wealth outside the tax base.

Third, these systems were built before the era of modern financial transparency. Governments lacked today’s tools for tracing offshore holdings, beneficial ownership, and cross-border financial flows.

The consequence was predictable. Revenues remained modest while political opposition intensified.

A new framework for taxing wealth

But the world of 2026 is not the world of 1986.

Today, tax authorities possess tools that earlier governments could barely imagine. Automatic exchange of financial information now operates across more than 100 jurisdictions under the Organisation for Economic Co-operation and Development (OECD) common reporting standard. Beneficial ownership registers are expanding. Offshore secrecy has weakened significantly. According to the EU Tax Observatory, international transparency initiatives have already reduced offshore tax evasion by wealthy individuals by a factor of about three over the last 10 years.

At the same time, the structure of elite wealth has become clearer. Modern billionaire wealth is not primarily held in family homes or savings accounts. It is concentrated in corporate equity, holding companies, and financial assets. Real estate typically represents only a small share of ultra-high-net-worth portfolios.

This changes the design challenge fundamentally.

The emerging Zucman framework ‒ like the approach of the UK Wealth Tax Commission ‒ starts from a very different premise. Stop trying to build a traditional annual wealth tax on broad sections of society. Instead, target only the extreme apex of wealth where tax regressivity is now most severe.

That means very high thresholds ‒ perhaps €100m or more in net wealth ‒ combined with extremely broad tax bases and very limited exemptions.

The objective is not to tax ordinary wealth accumulation, retirement savings, or family homes. It is to ensure that individuals controlling extraordinary concentrations of capital do not face lower effective tax rates than the nurses, engineers, teachers and managers whose labour sustains the economy itself.

This is where Zucman’s most important innovation emerges.

Historically, wealth taxes operated as standalone annual levies on assets. Critics argued this amounted to double taxation because income had already been taxed once before being accumulated into wealth.

The modern proposal is different.

Instead of a standalone wealth tax, the proposal increasingly centres on a minimum effective tax floor for ultra-high-net-worth individuals. The principle is simple: total taxes paid each year should equal at least a minimum percentage of total wealth.

If taxes are already paid through income tax, capital gains tax, inheritance tax, and corporate tax exceed the threshold, no additional liability arises. But if an ultra-wealthy individual has legally structured their affairs so that their effective tax burden collapses towards zero, a top-up tax applies.

This is a profoundly important shift because it reframes the argument away from ​“punishing wealth” and towards defending the integrity of the tax system itself.

Building a wealth tax that works

A G20 approach to this, building on proposals by Zucman and others, would help with three key questions.

First are the thorny design issues. Designing a wealth tax requires answering difficult constitutional questions about residence, valuation, liquidity, and enforcement. Who exactly pays? Individuals or households? Denizens, citizens, or residents? How are trusts treated? What liabilities are deductible? What counts as wealth: pension funds, business equity, illiquid private companies, land awaiting planning permission? When should wealth be taxed: on transfer, on gains, annually, at death? And how do we ensure that ​“asset-rich, cash-poor” households are not forced into hardship simply to meet liabilities? These are serious design questions, not technical footnotes.

Second is the challenge of managing capital flight. Mobility concerns must be treated very seriously. Wealthy individuals can relocate more easily than most citizens. As it happens, the evidence is more nuanced than political rhetoric often suggests. Empirical studies from France, Scandinavia, and the UK suggest that relocation effects exist, but are limited and concentrated among a relatively small number of highly mobile households.

The larger problem historically was not mass migration but the hollowing-out of the tax base through exemptions and preferential treatment. But governments are not powerless in the face of these risks. Policy options range from one-off exit taxes to the American model of citizenship-based taxation, where tax obligations follow nationality rather than residency.

A more balanced approach, however, may lie in the idea of a ​“trailing tax”. Under such a system, ultra-high-net-worth individuals who have lived in a country for many years and accumulated very large fortunes there ‒ for example, above £100m ‒ would remain partially liable for tax for a fixed period after departure, perhaps 5, 10, or 15 years. Crucially, they would pay only the difference between the tax owed in their new jurisdiction and the rate applicable in their original country of residence. The objective is not to punish genuine relocation, but to deter the strategic use of low-tax jurisdictions purely to avoid contribution. In other words, modern systems will require credible anti-avoidance rules. Exit taxes, trailing tax residency rules, and stronger international coordination will all become increasingly important.

Third is the challenge of ensuring we do not disincentivise business investment. This is especially important for the UK because we have the second-lowest rate of investment in the G7, and an investment gap with our peers. The Productivity Institute estimates that the UK’s capital gap – the stock of productive capital available to UK workers compared to selected peers – may now be as large as £2tn as of 2019.

The case for confidently pursuing a wealth tax is that a modest minimum tax on extreme wealth ‒ for example, 2% on fortunes above £100m ‒ is unlikely to materially damage productive investment because the ultra-wealthy typically earn rates of return far above this level. My own instinct, however, is that these risks must be thoroughly tested; we may have to look at how countervailing action ‒ through public finance institutions and incentives for institutional investment (ie those stewards of our collective long-term savings) ‒ might be needed as a complement.

The fundamental case for action

Perhaps the most critical question, however, is this: What choice do we have? Across economies, rich and poor, the fiscal pressures of the next two decades will intensify. Richer countries face challenges from rising defence spending. Climate adaptation will demand vast investment. Health systems face demographic strain. AI will likely produce both enormous wealth concentration and major labour market disruption simultaneously. In poorer countries, the giants blocking the road to the 2030 SDG’s are unlikely to magically shrink. And in rich and poor countries alike, there is a wider question, not of envy, but of fairness.

For most citizens, tax is accepted not because people enjoy paying it, but because they believe contribution is shared. Once that belief collapses, democratic trust begins to erode. That is why this debate matters so profoundly.

The great challenge of democratic capitalism in the 21st century is not whether markets generate wealth. It is whether democratic societies retain the power to govern the consequences fairly.

The age of hyper-globalisation encouraged many governments to believe that capital had become essentially untaxable. That assumption is now breaking down. Modern transparency systems, international cooperation, and better economic evidence are reopening political choices that once appeared closed.

The question is no longer whether we can tax extreme wealth more effectively. The question now is whether democracies can afford not to.

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