Any Lib Dems who care to look at the figures will see the rich are paying their fair share

Every conference season, the same thing happens. The party says we should tax the rich more. But the numbers prove that would not address the real problem

Share

This is becoming familiar. With each party conference it has held since joining the Conservatives in a coalition, the Liberal Democrat parliamentary party seeks (with mounting desperation) to differentiate itself from its partners in Government.

And once again, Messrs Clegg and Cable have decided that attacking “the rich” is the best way to do this. Not a bad idea, actually, if it’s only image you are concerned about. There is no doubt the Tories do suffer electorally from being identified by millions as a party representing only the interests of the toff class. In fact, this week the Lib Dems might have achieved their objective merely by declaring that, unlike one of the Cabinet’s Tory ex-public schoolboys, they would never dream of treating the police as if they were uppity peasants, or recalcitrant family retainers.

However, the party conference “differentiation” agenda had already been written: it was to consist of Nick Clegg declaring that the “top 10 per cent” must pay more tax, and Vince Cable thundering about those British who choose to reside in tax havens such as Monaco, which, quoting Somerset Maugham, he described as “a sunny place for shady people”.

I always enjoy the Liberal Democrats on this theme, if only for the sheer incongruity of it. After all, it was the personable Liberal Democrat Chief Secretary, Danny Alexander, who appointed Sir Philip Green to be the Government’s adviser on how to “cut wasteful spending” in Whitehall. This would be the same Sir Philip Green whose Arcadia business is in his wife’s name; since Lady Green is a Monaco resident, this allowed the Green family to extract a £1.2bn dividend from Arcadia, free of tax.

Then there is Baron Oakeshott of Seagrove Bay, the most outspoken of all the Lib Dem legislators in denouncing tax avoidance, which he describes as “terrible... anti-social and has no place in a civilised society”. Yet the undeniably rich Lord Oakeshott derives his own fortune from part-ownership of an investment trust manager called OLIM. The principal attraction of an investment trust, as one financial circular explained it, is: “It can trade in and out of its investments without incurring capital gains tax.”

But let us not be distracted by what must be accidental oversights by these men of the highest principle. We should take what they say at face value and ask, not whether they are the right people to say it, but whether or not it makes sense. Is it, in fact, the case that the well-off in Britain are not pulling their fiscal weight? Is the existing tax system dreadfully slanted in favour of the very well-off and careless of the needs of the least well-remunerated?

Best to go straight to the horse’s mouth, which in this case is Her Majesty’s Revenue and Customs. Its figures for 2011/12 show that the top 1 per cent of income earners paid 24.8 per cent of all income tax collected: the same group’s earnings were 11.2 per cent of the total. This fact helps to explain just why the Treasury gets so jumpy at the thought of more top earners joining Lady Green in Monaco: the tax base increasingly resembles an inverted pyramid, so it wouldn’t take much for the whole thing to topple over.

This, more or less, is what has happened in California. By far the most populous of all the states of the Union, it had reached a situation in which almost half of all net income taxes were being paid by the top 1 per cent of earners. When enough of them moved out, or fell on hard times, it was a substantial cause of a series of municipal bankruptcies – as a result of which a number of Californian cities are no longer able to pay the pensions of former state employees.

That, in part, is the background to the now notorious remark by the Republican presidential candidate Mitt Romney, to the effect that almost half of the voters pay no income tax and will vote for Obama no matter what, because “they are dependent upon government, who believe that they are victims”. This was staggeringly bad politics on Romney’s part, not least because a significant portion of those people he stigmatised vote Republican.

Yet the basic US fiscal structure is pretty much as Romney described. As a matter of fact, it was mostly Republican presidents, such as Ronald Reagan and George W Bush, who created this giant system for the creation of fiscal deficits: this is what happens when you narrow the tax base and increase public spending. The Harvard economics professor Greg Mankiw observed a couple of months ago on his blog that the most recent figures from the Congressional Budget Office on the distribution of income and taxes showed that the effective tax rate in the US is not negative just for those in the bottom two quintiles (ie, the bottom 40 per cent); even the middle quintile were net recipients. Or, as Mankiw expressed it: “The middle class, having long been a net contributor to the funding of government, is now a net recipient of government largesse.”

Inspired by this observation, Britain’s own Centre for Policy Studies has attempted a similar analysis of the fiscal position in the UK. It has shown me its provisional figures, which reveal a very similar situation. It is clearly a complex business to work out the value of all benefits at every income level, so the numbers need to be treated with caution, especially because many in the lower-earning brackets will be retired people. None the less, the figures are striking.

According to the CPS, in the year 2010/2011 taxes less transfers as a proportion of original income were minus 211 per cent for the lowest quintile, minus 85 per cent for the second lowest quintile and minus 23 per cent for the middle quintile. It is only when you get into the top 40 per cent that people begin to be net contributors.

The truth is that both in the US and (to a lesser extent) the UK, governments have for years acted efficiently as vote-maximisers with their tax and spend policies: increasing the number of those eligible for benefits while reducing the number called upon to fund them. Result (as Mr Micawber might have put it): misery, in the form of a colossal national debt. The rich will indeed have to pull their weight in order to help pay this down, probably with higher council tax; but it is fatuous for any numerate politician to pretend that this is where the fiscal problem lies.

React Now

  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
iJobs Job Widget
iJobs General

Sheridan Maine: Accounts Assistant

£25,000 - £30,000: Sheridan Maine: Are you looking for a fantastic opportunity...

Neil Pavier: Commercial Analyst

£50,000 - £55,000: Neil Pavier: Are you a professionally qualified commercial ...

Loren Hughes: Financial Accountant

£45,000 - £55,000: Loren Hughes: Are you looking for a new opportunity that wi...

Sheridan Maine: Finance Analyst

Circa £45,000-£50,000 + benefits: Sheridan Maine: Are you a newly qualified ac...

Day In a Page

Read Next
 

I might be an MP, but that doesn't stop me fighting sexism with my breasts

Björt Ólafsdóttir
 

Daily catch-up: opening round in the election contest of the YouTube videos

John Rentoul
No postcode? No vote

Floating voters

How living on a houseboat meant I didn't officially 'exist'
Louis Theroux's affable Englishman routine begins to wear thin

By Reason of Insanity

Louis Theroux's affable Englishman routine begins to wear thin
Power dressing is back – but no shoulderpads!

Power dressing is back

But banish all thoughts of Eighties shoulderpads
Spanish stone-age cave paintings 'under threat' after being re-opened to the public

Spanish stone-age cave paintings in Altamira 'under threat'

Caves were re-opened to the public
'I was the bookies’ favourite to be first to leave the Cabinet'

Vince Cable interview

'I was the bookies’ favourite to be first to leave the Cabinet'
Election 2015: How many of the Government's coalition agreement promises have been kept?

Promises, promises

But how many coalition agreement pledges have been kept?
The Gaza fisherman who built his own reef - and was shot dead there by an Israeli gunboat

The death of a Gaza fisherman

He built his own reef, and was fatally shot there by an Israeli gunboat
Saudi Arabia's airstrikes in Yemen are fuelling the Gulf's fire

Saudi airstrikes are fuelling the Gulf's fire

Arab intervention in Yemen risks entrenching Sunni-Shia divide and handing a victory to Isis, says Patrick Cockburn
Zayn Malik's departure from One Direction shows the perils of fame in the age of social media

The only direction Zayn could go

We wince at the anguish of One Direction's fans, but Malik's departure shows the perils of fame in the age of social media
Young Magician of the Year 2015: Meet the schoolgirl from Newcastle who has her heart set on being the competition's first female winner

Spells like teen spirit

A 16-year-old from Newcastle has set her heart on being the first female to win Young Magician of the Year. Jonathan Owen meets her
Jonathan Anderson: If fashion is a cycle, this young man knows just how to ride it

If fashion is a cycle, this young man knows just how to ride it

British designer Jonathan Anderson is putting his stamp on venerable house Loewe
Number plates scheme could provide a licence to offend in the land of the free

Licence to offend in the land of the free

Cash-strapped states have hit on a way of making money out of drivers that may be in collision with the First Amendment, says Rupert Cornwell
From farm to fork: Meet the Cornish fishermen, vegetable-growers and butchers causing a stir in London's top restaurants

From farm to fork in Cornwall

One man is bringing together Cornwall's most accomplished growers, fishermen and butchers with London's best chefs to put the finest, freshest produce on the plates of some of the country’s best restaurants
Robert Parker interview: The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes

Robert Parker interview

The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes
Don't believe the stereotype - or should you?

Don't believe the stereotype - or should you?

We exaggerate regional traits and turn them into jokes - and those on the receiving end are in on it too, says DJ Taylor