Soak the rich, Vince? There aren't enough of them to tax

 

Share
Related Topics

How can we crank more money out of the tax system? Can we make the the rich pay more? And what other options are there to increase revenues?

Click HERE to view graphic

These practical questions facing the Coalition have been very evident this week, but of course they will run far beyond the life of the present government. They go to the very heart of what kind of society we want to be. It is a hugely important debate but one in which the practicalities tend to get ignored, so the best place to start is to look at the numbers.

For the past 35 years, the entire working life of people approaching retirement now, the tax take in the UK has been around 38 per cent of GDP. It was a bit higher in the early 1980s and a bit lower in the early 1990s but for the past 15 years it has been extraordinarily stable, as you can see in the first graph.

Public spending, by contrast, has shot up and shot down, ranging between nearly 50 per cent of GDP and 36 per cent. So if we want to get more out of the tax system we have to do something that has not been done for 35 years.

Now look at how we raise tax. The estimates from the Office for Budget Responsibility suggest that tax revenue this year will be about £550bn. Out of that, £350bn comes from just three taxes, £150bn from income tax, and £100bn apiece for national insurance contributions and VAT. After that comes corporation tax at £45bn, and £25bn each from fuel duties, business rates and council tax. Alcohol brings in £10bn, tobacco another £10bn but after that the revenues are tiny. For example, inheritance tax brings in only £3bn, as do stamp duties on share trading, and air passenger duty. Capital gains tax is only £4bn.

So you see the problem. We could bring in a wealth tax but not only would that create awkward questions – do you include the value of people's main home? – it is hard to see it bringing in more than inheritance tax or capital gains tax.

We could have a mansion tax but again it is not realistic to expect it to bring in more than £5bn and probably much less. We could increase corporation tax but what would that do to companies' investment plans?

The simplest way to boost revenues is not to fiddle about with little taxes but to get the additional money out of the three big ones.

Income tax is the prime candidate, with the top 1 per cent of earners already paying more than a quarter of it and the top 10 per cent about half.

But as we have seen (and as the Institute for Fiscal Studies predicted) increasing the top tax rate to 50p has not brought in any additional revenue. Income tax receipts this year are down, not up. It may be that more revenue can be extracted from income tax but that would probably have to come from the 40 per cent band – the top 10 per cent rather than the top 1 per cent.

National Insurance Contrib-utions could also be increased on higher earners but again to get significant sums you have to go down to people who would not consider themselves rich.

As for VAT, you could have a special luxury rate on whatever are deemed inessentials – perfume, expensive wine, top-end cars – but the only way to bring in big money would be to extend its range. That is what much of Europe does but it is hard to see us extending VAT to food.

The core of the problem is not so much that very rich people are adept at avoiding tax. It is that there are not enough of them.

Yes, we could squeeze a bit more out of the tax system and yes, the very rich could be made to pay a bit more. That is clearly what will happen. But if we want to get above that 38 per cent of GDP in tax it will be the upper-middle band of earners who will have to pay the bill.

React Now

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

Guru Careers: Software Developer / C# Developer

£40-50K: Guru Careers: We are seeking an experienced Software / C# Developer w...

Guru Careers: Software Developer

£35 - 40k + Benefits: Guru Careers: We are seeking a Software Developer (JavaS...

SThree: Trainee Recruitment Consultant / Resourcer

£18000 - £23000 per annum + Commission: SThree: As a Trainee Recruitment Consu...

Ashdown Group: UI Developer - (UI, HTML, CSS, JavaScript, AngularJS)

£25000 - £40000 per annum: Ashdown Group: UI Developer - (UI, JavaScript, HTML...

Day In a Page

 

In Sickness and in Health: 'I'm really happy to be alive and to see Rebecca'

Rebecca Armstrong
Abuse - and the hell that came afterwards

Abuse - and the hell that follows

James Rhodes on the extraordinary legal battle to publish his memoir
Why we need a 'tranquility map' of England, according to campaigners

It's oh so quiet!

The case for a 'tranquility map' of England
'Timeless fashion': It may be a paradox, but the industry loves it

'Timeless fashion'

It may be a paradox, but the industry loves it
If the West needs a bridge to the 'moderates' inside Isis, maybe we could have done with Osama bin Laden staying alive after all

Could have done with Osama bin Laden staying alive?

Robert Fisk on the Fountainheads of World Evil in 2011 - and 2015
New exhibition celebrates the evolution of swimwear

Evolution of swimwear

From bathing dresses in the twenties to modern bikinis
Sun, sex and an anthropological study: One British academic's summer of hell in Magaluf

Sun, sex and an anthropological study

One academic’s summer of hell in Magaluf
From Shakespeare to Rising Damp... to Vicious

Frances de la Tour's 50-year triumph

'Rising Damp' brought De la Tour such recognition that she could be forgiven if she'd never been able to move on. But at 70, she continues to flourish - and to beguile
'That Whitsun, I was late getting away...'

Ian McMillan on the Whitsun Weddings

This weekend is Whitsun, and while the festival may no longer resonate, Larkin's best-loved poem, lives on - along with the train journey at the heart of it
Kathryn Williams explores the works and influences of Sylvia Plath in a new light

Songs from the bell jar

Kathryn Williams explores the works and influences of Sylvia Plath
How one man's day in high heels showed him that Cannes must change its 'no flats' policy

One man's day in high heels

...showed him that Cannes must change its 'flats' policy
Is a quiet crusade to reform executive pay bearing fruit?

Is a quiet crusade to reform executive pay bearing fruit?

Dominic Rossi of Fidelity says his pressure on business to control rewards is working. But why aren’t other fund managers helping?
The King David Hotel gives precious work to Palestinians - unless peace talks are on

King David Hotel: Palestinians not included

The King David is special to Jerusalem. Nick Kochan checked in and discovered it has some special arrangements, too
More people moving from Australia to New Zealand than in the other direction for first time in 24 years

End of the Aussie brain drain

More people moving from Australia to New Zealand than in the other direction for first time in 24 years
Meditation is touted as a cure for mental instability but can it actually be bad for you?

Can meditation be bad for you?

Researching a mass murder, Dr Miguel Farias discovered that, far from bringing inner peace, meditation can leave devotees in pieces
Eurovision 2015: Australians will be cheering on their first-ever entrant this Saturday

Australia's first-ever Eurovision entrant

Australia, a nation of kitsch-worshippers, has always loved the Eurovision Song Contest. Maggie Alderson says it'll fit in fine