What do
you think the fifth most read piece on the personal finance part of the FT
website is? The obvious answer is to think that it will relate to some kind of
recent news – perhaps platform charging or how to protect your portfolio from
tapering turmoil.
It
isn’t. It is an article written by Lucy Warwick-Ching back in 2012 on the ten
ways in which HMRC can tell if you are cheating on your taxes. And it isn’t
just on the most-read list now, it’s been on the list since it was written.
What
this tells me is that the people who read the FT think they pay too much tax,
and that they are either trying to avoid or evade as much as they can, or they
are wondering if they might give it a go. If I was in charge of the country,
that in itself would be enough to make me think that I wouldn’t want to raise
tax rates at all. Ever.
Better,
I would think, to take in as much as I can at lower rates than battle rising
evasion/avoidance at higher rates. But I’m not Ed Balls or Ed Miliband, and I
am not engaged in an ideological battle against anyone I perceive as rich or
over-aspirational.
The idea
of returning the top rate to a level that even Labour called ‘temporary’ when
it was first introduced smacks, as Lord Myners put it, of “predatory taxation”,
and I can’t really see the point of that.
One
important thing to note on this argument – and one that appears to be wilfully
ignored by everyone – is that no one’s income is static. It might be that at
any one moment only 1% of the population are earing £150,000 plus. But over a
career, that number is much, much higher. I can’t find figures on this in the
UK, but for a hint we can turn to the US.
Some 2%
of people are earning $250,000 at any one time. But ten times that number – 20%
– earn the equivalent of $250,000 at some point in their career. The point is
that the 1% is not actually 1% at all. This kind of penalty affects a huge
range of people at the top of their game and on the way to the top of their
game.
And
let’s not forget that direct tax rates in the UK are already pretty high. There
is no such thing as a 45% marginal rate. Everyone pays another 2% in NI at that
level, so the minimum you can call our top rate is 47%. You can then argue that
employers, National Insurance (a cost which employees effectively end up paying
by being forced to accept lower wages) is actually an income tax too. Look at
it like that, and the top rate of tax is already far more than 50% already. Not
too low, but too high.
It is
also worth noting that back in 1979 the top 1% of income earners paid 13% of
all our income tax – at a time when the top rate was 83%. Today the top 1% of
income earners (not wealth holders but income earners – the difference is
important) already pay not far off 30% of all UK income tax despite earning
less than 14% of all income.
The
arguments about whether higher taxes bring higher revenues will run and run,
but my final statistic on this comes from the Sunday Times. In 2012-13, when
the 50p rate was in place, HMRC raised £41.6bn from it. This year, with 45p as
the top rate, it is to raise £49.3bn.
That
should make those who support a rise wonder if demanding it is a good idea –
one that will encourage wealth creation, innovation and entrepreneurial energy
– or just a sure fire way of raising less tax revenue overall.
By Merryn
Somerset Webb of Money Week
