The Great Tax Clawback Scam: How the Rich Get Their Money Back (And Then Some)
A conversation with economic author Fred Harrison reveals the hidden machinery that keeps the working class paying for public services the wealthy enjoy — and why no mainstream political party will ever solve this.
There is a question that ought to be asked at every party conference, every Budget statement, every hustings and every kitchen table debate in Britain: why, in a society that calls itself a liberal democracy, do the people who work the hardest end up with the least?
The standard answers, immigration, automation, globalisation, and austerity, are well-worn and largely unsatisfying. But there is another explanation, one that cuts far deeper, that has been hiding in plain sight for centuries, and that almost nobody in a position of power is willing to name. It concerns rent. Not the rent you pay your landlord each month, though that is part of it, but the broader economic rent that flows silently and relentlessly from those who produce wealth to those who simply own things and particularly those who own land.
Fred Harrison has spent decades trying to bring this explanation into the mainstream. He is the author of Ricardo’s Law: House Prices and the Great Tax Clawback Scam, among other works, and his analysis is as uncomfortable as it is compelling. In a recent conversation, he laid out the mechanics of the system with a clarity that politicians and economists rarely muster, perhaps because they have every incentive not to.
The Mechanism Nobody Talks About
Begin with a simple observation. Working people in Britain pay taxes. Rich people in Britain also, formally pay taxes. So far, so democratic. But here is where the system reveals its true character: the rich get the money back.
The mechanism is not mysterious once you understand it. Public expenditure on roads, railways, schools, hospitals, parks, and policing raises the value of land in the areas it serves. If the government builds a new tube station near your street, your street becomes more desirable. The land upon which your house sits becomes more valuable. Not because of anything you did, but because taxpayers collectively funded an improvement that is now capitalised into the price of your property.
This is what Harrison calls the “tax clawback.” The wealthy, who tend to live in the most desirable locations, the ones already best served by public infrastructure, pay their taxes with one hand and receive the appreciation of their land values with the other. Net effect: they are often no worse off, and frequently considerably better off, than before they paid a penny in income tax.
One of Harrison’s former associates, a property owner named Don Riley, spent years calculating exactly this effect across his own portfolio in Southwark, near the Jubilee Line extension. Over four decades, he found that the increase in his properties’ location values driven entirely by public investment exceeded the taxes he had paid. He was, in the language of the accountant, quids in.
The working-class renter living in the same borough had no such recourse. They paid their taxes and received nothing back in the form of appreciating assets. The value created by their taxes went to enrich the landowner, not themselves.
“The rich people do go through the motions of paying taxes on their high income,” Harrison explains, “but they live in locations that are so valuable because they get the money back from the government that they’ve paid. Not only do they get their tax revenue back, but they get a bonus on top.”
A System Built to Scam
This is not accidental. Harrison argues that the political and economic structures we have inherited were not designed, in any innocent sense, to promote fair exchange. They were built by people who wished to extract value from the labour of others while contributing as little as possible themselves.
“Our political system was built by the people who wanted to scam others,” he says bluntly. “They did so by structuring the rules so that the working population actually creates the wealth and those who were the free riders pocket the net income — the rents of the nation.”
The language of liberal democracy, equality before the law, individual rights, and meritocracy functions, on this reading, as a kind of ideological camouflage. It makes the system appear fair while obscuring the fundamental asymmetry at its heart: some people work and pay, whilst others own and collect.
The consequences are not abstract. The Office for National Statistics recently published data showing that in Britain, a person’s healthy life expectancy ends, on average, around the age of 61. The Daily Telegraph ran the headline: “Enjoy your health, it’ll be over by the time you’re 61.” But this figure, of course, is an average that masks radical inequality. Those living in low-income areas, with poor infrastructure and inadequate services, fall ill earlier and die younger. Those in high-value locations, whose property appreciates year after year on the back of public spending they have effectively received for free, live longer, healthier lives and enjoy, as Harrison puts it, “the best public services.”
This is not a bug in the system. It is the system.
The Poverty Trap as a Feature, Not a Bug
There is a further twist that makes the whole arrangement almost elegant in its perversity. The same working people who are being shortchanged by the tax system are increasingly dependent on benefits, such as housing benefit, tax credits, and universal credit, that partially compensate for their inadequate wages. Wages that are inadequate, in large part, because the system is structured to siphon value away from labour and towards land.
“Here we have this crazy system,” Harrison observes, “where the people who work to create the wealth are not only ripped off through the tax regime to support the rich folk, but they then force Labour governments mainly to create the benefits to try and offset the suffering that’s imposed on them.”
The political optics of this are remarkable. The right complains about the size of the welfare state. The left defends it as a lifeline for the vulnerable. Both are correct, and both are missing the point. The benefits bill is, to a significant degree, a subsidy to the landowner class — a mechanism by which the public treasury compensates workers for wages that have been suppressed by the very people whose property rises in value while they sleep.
Raise benefits, and you are treating the symptom. Build more houses, and you may ease the pressure slightly. But until the underlying mechanism is addressed — the capture of publicly created value by private landowners — the problem will not go away.
The Spatial Dimension: How Rent Segregates Society
There is another dimension to this that receives almost no attention in mainstream discourse: the spatial distribution of people. Economists have a fancy term for it, the “spatial allocation of income”, but the basic idea is simple enough. Where you live determines an enormous amount about your life outcomes, your health, your children’s education, and your access to opportunity. And what determines where you live, in a market economy, is what you can afford to pay in rent.
Rent, in this sense, is the engine of segregation. It is the mechanism by which high earners are filtered into high-amenity areas and low earners are pushed into areas that are poorly served, poorly connected, and poorly resourced. The public investment that would improve those areas flows instead, through the tax clawback mechanism, to the already-wealthy areas where it is capitalised into land values that benefit the already-wealthy.
“The mechanism that works on the basis of the spatial distribution of income is rent,” Harrison explains. “But there’s no discussion in policy circles or Government or even in the literature on how people’s incomes ultimately are affected by the pulling power of those who own the rent-generating assets.”
The silence is not accidental. Understanding rent truly understanding it, in the classical economic sense, leads inescapably to uncomfortable conclusions about who owns what, who pays for what, and who benefits from what. It is an analysis that the landowning class, and the politicians who represent them, have very strong reasons to suppress.
Political Paralysis: Left, Right, and the Road to Nowhere
One of the most demoralising aspects of this situation is that neither mainstream left nor mainstream right has anything useful to offer. Both, in their different ways, are trapped within a model of economics that rules out the only solution that might actually work.
The right argues that you cannot tax the rich too heavily because the rich are the ones making the investments that drive economic growth. There is something in this genuine productive investment that is valuable and should be encouraged. But this argument is deployed as a blanket justification for the entire income stream of the wealthy, including the portion that derives not from productive activity but from pure rent extraction: sitting on land while other people’s taxes make it more valuable.
“Real investment is really brilliant,” Smith concedes. “But rent extraction is hugely damaging. They just cloak over that and make rent extraction a disappearing act.”
The left, meanwhile, proposes to raise taxes and use the proceeds to improve public services and reduce inequality. This sounds reasonable until you notice that it leaves the tax clawback mechanism entirely intact. Raise income taxes and the money flows, via public spending, into the infrastructure that raises land values, which are then harvested by the very wealthy people who paid the taxes. Round and round it goes.
Keir Starmer’s government provides an instructive example. Labour came to power promising to help working people and rebuild public services. Its first significant fiscal move was to raise employer National Insurance contributions — a tax on employment that bears most heavily on those least able to pass it on: workers in low-wage sectors and small businesses. As Smith notes, “A so-called socialist well, the Labour Party, why can they not cut taxes on the poor? There is no alternative under the model of economics that we have.”
He is right, and the point is devastating. It is not that Labour politicians are uniquely dishonest or corrupt. It is that they are operating within a framework whose rules do not permit the outcomes they claim to want. You cannot help working people while leaving intact the mechanism that extracts value from their labour and transfers it to landowners.
Thatcher understood this, implicitly if not explicitly, and used it to her advantage, cutting taxes for the very wealthy whilst leaving the structural mechanisms of rent extraction untouched. Every subsequent government has operated within the same framework, tweaking the settings but never questioning the machine.
The Charismatic Idiot Problem
Into this vacuum of genuine policy comes a succession of charismatic figures who promise to do things differently. Donald Trump in America. Nigel Farage in Britain. Left-wing populists in New York and across Europe. They speak in the language of the forgotten working person, rail against the establishment, and generate enormous excitement among the genuinely dispossessed.
And then they propose exactly the same policies that have failed for the past hundred years.
“When people get tired of the old parties lying to them, they just turn to an alternative charismatic person who makes the claims that he will or she will solve the problem,” Harrison observes. “But when you look at what their policies are, they’re exactly the same as the policies that have failed for the previous 100 years.”
The danger here is not merely wasted opportunity. It is something considerably darker. When democratic institutions consistently fail to deliver meaningful improvement in people’s lives, trust in those institutions erodes. And when trust erodes far enough, historically, there is always somebody waiting to exploit the resulting anger and despair. Harrison invokes Adolf Hitler not for shock value but as a historical reminder of where political paralysis, mass frustration, and charismatic demagoguery can lead.
We are not at that point. But the direction of travel is not reassuring.
The Wealth Tax Illusion
Politicians of the left have recently rediscovered the wealth tax as their preferred solution. Across multiple parties, Labour, the Greens, and the Liberal Democrats, there is considerable enthusiasm for the idea of taxing wealth more heavily. It polls well. It sounds fair. It addresses, rhetorically at least, the problem of inequality.
The problem is that nobody can quite work out how to do it.
Wealth is extraordinarily difficult to tax in practice. It is mobile, diverse, easily concealed, and held in forms that resist straightforward valuation. Every serious attempt to design a workable wealth tax runs into these problems and either collapses into complexity or ends up taxing something rather different from what was intended.
Meanwhile, the Green Party, which, buried within its policy platform, actually supports a proper tax on economic rent, cannot seem to bring itself to make this the centrepiece of its public message. Instead, its leaders appear on television calling for a wealth tax, which they know will never be implemented in any meaningful form.
“Even the Green Party, where are their economists, where are their advisers, and why is their leader coming out with such nonsense?” Smith asks, with visible frustration. Harrison's answer is equally blunt: “Because they’ve been educated into the nonsense paradigm.”
The “nonsense paradigm” is mainstream economics as it has been taught in universities and practised in think tanks for the past century or more: a framework that has systematically excised the classical concept of economic rent from its analysis, that treats land as simply another form of capital, and that therefore cannot identify rent extraction as a distinct and pernicious phenomenon requiring its own policy response.
The solution, taxing economic rents rather than taxing income or transactions, is not complicated in principle, though it requires political courage to implement. It would replace the current system, which taxes the activity of working and investing, with one that taxes the passive holding of land value that has been created by the community. It would eliminate the tax clawback mechanism at a stroke. It would align private incentives with the public good.
It has been advocated by thinkers from Adam Smith to John Stuart Mill to Henry George to Winston Churchill. It has been implemented, in various forms, in parts of Denmark, Singapore, and Taiwan. It has never been seriously attempted in Britain, because the landowners who would lose out are also the people who fund political parties, own newspapers, and populate the think tanks.
The Corruption of the Financialised Economy
There is one further layer to this story, and it concerns the way in which the financialisation of everything, the transformation of assets, liabilities, legal claims, and speculative positions into tradeable instruments, corrupts not just the economy but the fabric of society itself.
In recent months, a story emerged from America that crystallises the problem. A relative of a senior Trump cabinet member was reportedly buying up a new class of speculative asset: claims against the federal government for losses arising from sudden changes in tariff policy. The theory was that as tariff rules changed unpredictably, businesses would suffer losses, those losses would become the subject of legal claims, and those claims could themselves be bought and sold as financial instruments. When a Supreme Court ruling moved the market for these instruments, insiders with advance knowledge found themselves substantially richer.
This is, as Harrison says, legal. It is also, as he also says, corrupt in the sense of representing a fundamental corruption of what economic activity is supposed to be for. An economy should direct human effort and ingenuity towards the creation of genuine value: goods, services, knowledge, and innovation. When it instead rewards the extraction of existing value — through rent, through information asymmetry, through the financialisation of claims on other people’s activity — it does not merely fail to create wealth. It actively destroys the social capital, the mutual trust, and the sense of collective purpose that make a society capable of dealing with genuine challenges.
“Every little bit of behaviour that doesn’t actually strengthen society weakens it,” Harrison says. “And the more we weaken the fabric through individual acts, some of which seem pretty harmless, but they’re not positive contributions to well-being, they’re just dodging around it, contribute to the depletion of the system so that when the crunch comes, we’re not able to meet the challenge.”
This is a profound point that tends to get lost in debates about economic efficiency. It is not enough to ask whether a given activity creates GDP. We must ask whether it builds or depletes the moral, social, and institutional resources upon which a functioning society depends. A system that rewards free-riding on other people’s work, that channels wealth upwards through rent extraction while telling the extractors they have earned it, that dresses exploitation in the language of liberty and meritocracy — such a system is not merely inefficient. It is corrosive.
The Honest Conversation We Are Not Having
There is a further complication that Harrison is willing to acknowledge, and it is one that mainstream commentators almost never address: most of us are, to some degree, complicit.
Homeowners, and this is the majority of middle-class Britain, are not, in the main, vicious exploiters who set out to defraud their neighbours. They are people who bought houses, often at considerable sacrifice, and who have watched the value of those houses rise, and who have felt, quite naturally, that this rising value represents a reward for their prudence and hard work. To be told that it is, in substantial part, a free gift from the public purse, that their neighbours’ taxes have been paying for the infrastructure that made their street desirable, is deeply uncomfortable.
It requires something close to an admission that the capital gain on one’s home is not entirely deserved; that it has been subsidised by people who cannot afford to own homes at all. This is not a comfortable thought, and there is understandably a strong psychological resistance to it.
“We’ve been schooled into believing that we’ve earned the capital gains on the properties that we own,” Harrison acknowledges. “We don’t. The whole system is a fraud. But it’s not presented as such. It’s presented as human rights, equality before the law, liberal democracy, all the fine words that reinforce the present system.”
This is why the honest conversation is so hard to have. It is not just that politicians are dishonest, or that landlords are greedy, or that the media is captured. It is that the entire middle class, the class that votes, that funds newspapers, that fills the universities and the think tanks and the civil service, has a financial stake in maintaining a collective fiction about how wealth is created and distributed. To challenge the fiction is to challenge one’s own comfortable self-image.
And yet challenge it we must, because the alternative, carrying on within a framework that increasingly cannot sustain itself, leads somewhere very dark indeed. Harrison predicts an economic crash before the end of this year, driven by the same dynamics that produced the crises of 1990 and 2008: a speculative boom in land values, fuelled by cheap credit, followed by an inevitable correction that destroys the balance sheets of over-leveraged households, banks, and governments.
What Is To Be Done?
Harrison’s forthcoming book promises to reframe the debate in language that might actually reach people who have not previously engaged with classical political economy. Whether that proves sufficient to shift the terms of public discourse remains to be seen.
But the elements of a solution are not mysterious. They have been known, in broad outline, since at least the nineteenth century. Tax land values and all economic rents rather than earned income. Ensure that the value created by public investment flows to the public treasury rather than to private landowners. Stop subsidising rent extraction and start taxing it. The details of implementation are genuinely complex, but the principle is straightforward.
The obstacles are political, not technical. The people who benefit most from the current system are also the people with the most influence over the political process. They have no incentive to change a system that works magnificently for them, and every incentive to ensure that the public conversation stays focused on symptoms rather than causes: the housing crisis rather than land monopoly; the cost of living rather than the extraction of economic rent; wealth inequality rather than the mechanics of how that inequality is perpetuated and reproduced.
Meanwhile, as the conversation continues to circle around the wrong questions, the clock is ticking. Economic systems under severe stress do not simply deliver bad outcomes indefinitely. At some point, they break. And when they break, the vacuum is not filled by sensible reformers with well-argued policy proposals. It is filled by whoever is loudest, most charismatic, and least encumbered by the truth.
The work of people like Fred Harrison, painstaking, unfashionable, and systematically ignored by the mainstream, matters more than it might appear. Not because economists holding heterodox views will be suddenly invited onto political platforms, but because ideas need to be available when circumstances make people ready to receive them. When the crash comes, and it will come, the question will be whether anyone can explain what happened and why — and whether there is a coherent alternative vision ready to fill the space.
The answers already exist. The question is whether we are willing to listen before we are forced to.
Fred Harrison’s forthcoming book, exploring new frameworks for understanding and communicating the rent question, is expected in early spring. His previous works include Ricardo’s Law: House Prices and the Great Tax Clawback Scam avaialbe here: https://shepheardwalwyn.com/fred-harrison-author/
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