Tax justice » Tax Research UK

The TUC and the 50p tax rate

Mar 082012

The TUC has issued a new report by me tonight on the 50p tax rate. As they say about it:

People earning £150,000 or more enjoy tax breaks worth more than the annual salaries of nearly eight million workers, according to a new TUC report published today (Thursday).

The report Is 50/50 fair? – authored by tax specialist Richard Murphy – shows that around 300,000 people in the UK (around one per cent of the population) earn at least £150,000 and therefore have part of their earnings subject to the 50p tax rate.

The report uses the latest available HMRC data to estimate that taxpayers on the 50p rate enjoy tax breaks worth around £3.5bn – or £15,000 each. Government statistics show that around 31 per cent of workers in the UK (7.8 million people) earn less than £15,000 a year.

Critics of the 50p tax rate often argue that it has forced people to leave the country. However, the report argues that as the vast majority of 50p rate taxpayers are either employees or self-employed with UK-specific skills, opportunities to move abroad are limited.

Another argument made for scrapping the 50p tax rate – it is apparently causing people to work less – is insulting to hard-working wealth creators and contradicts the government’s own policy on work incentives, says the TUC.

Under Universal Credit, the radical welfare reform which the government claims will ‘make work pay’, millions of basic rate taxpayers will keep just 24 pence of every extra pound they earn due to a loss of tax credits and benefits.

If low-paid staff are expected to work more despite marginal tax rates of 76 per cent, then people earning over £150,000 with lower marginal tax rates and far higher incomes should have more than enough motivation to work, says the TUC.

Is 50/50? Fair uses HMRC data to estimate that the 50p tax rate could raise more than the £3bn originally forecast by the Treasury. It also shows that any shortfall in revenue is likely to be down to tax avoidance, rather than people leaving the country or doing less work, and the Chancellor should use his Budget this month to close any lucrative loopholes exploited by the richest one per cent of earners.

The TUC is calling on the Chancellor keep the 50p tax rate and use his Budget to clamp down on tax breaks and loopholes by the super-rich by:

Restricting total allowances and relief for those earning over £150,000 to the maximum average level claimed by those earning less than £150,000.
Bringing capital gains tax into line with income tax to prevent people, particularly those in one person companies, converting pay taxed as income into low-tax capital gains or profit.
Introducing a comprehensive general anti-avoidance principle to clamp down on tax dodging by multi-national companies.

TUC General Secretary Brendan Barber said: “Apologists for the super-rich claim that the 50p tax rate is causing them to do less work, and worse still flee the country.

“What they don’t say is that most of them are enjoying tax breaks worth more than nearly eight million people earn in a year.

“The 50p tax rate is a fair tax that should raise much-needed revenue to pay off the deficit. If it fails to raise enough money then the government should be attacking the lucrative loopholes that allow people to dodge it, rather than the tax itself.

“Given the super-rich are so concerned about the incentive effects of the 50p tax rate, it is curious that they are silent about the plight of millions of low-paid workers who will only get to keep 24 pence of every extra pound they earn as a result of the government’s welfare reforms.

“The truth is that calls to scrap the 50p tax are about the richest one per cent trying to dodge paying their fair share of tax – and about making everyone else pay more instead.”

How much would abolishing pension tax relief for those on 50% raise?

Tax justice, Uncategorized 8 Responses »

Mar 072012

My answers – all I admit researched between 9.00 and 9.45am this morning – are on the Guardian web site.

It’s not less than £840 million. It could be somewhat more if we pushed the cap downwards.

How come some families get £25,000 cash benefits without question and others face a cap of £26,000?

Tax justice, Uncategorized 21 Responses »

Mar 072012

The Welfare Reform Bill passed last week, As a result there is now a cap of £26,000 a year on the benefits a family can receive, wherever they are, whatever their need, however many in the family there are.

The issue is contentious: I do not support that cap. It’s too crude to ever approximate to justice. Over 70,000 families will lose as a result of it, whether fairly or not.

But I have another reason for objecting. My research suggests that rather more families – more than 200,000 in fact – as quoted in the Guardian this morning – enjoy 50% tax relief on their pension contributions and get up to £25,000 a year in tax subsidy for their savings as a result.

The result is if you’re on hard times the maximum benefit you can have from the state is £26,000 on which to survive, come what may. But if you’re in the top 1% (the 50% tax payers are almost exactly 1% of all taxpayers) then you can have a benefit of £25,000 a year from the state to boost your savings and make you wealthier still.

You couldn’t make it up. Except the Tories did.

The mansion tax – can we end the debate now, please?

Tax justice 27 Responses »

Mar 072012

The Lib Dems mansion tax is, let’s be honest, a Lib Dem bodge.

It’s a simple tack on to council tax.

It’s crude.

The evidence base for valuation is going to be very marginal in many cases. And volatile. Perversely, many properties supposedly worth just over £2 million will rapidly fall in value by well over £100,000 the moment a tax was introduced.

And the all or nothingness of the threshold has inherent within it a massive core of injustice. After all, why should someone in a £1.9 million property pay band H council tax and someone in a £2.1 million property pay £21,000 extra?

The only thing that is not a problem with it is ‘the little old lady problem’ – the tax due by pensioners will simply be rolled up until death. That’s not an issue. Although it’s odd how the Tories are coming out in force to defend their own when they have just passed a law making it illegal for a person to live in a property with a spare bedroom – and compelling people to move if they do. The rank hypocrisy is staggering.

So let’s not pretend the mansion tax is a viable proposition: it’s not. It’s a ghastly compromise, with a threshold arbitrarily increased from £1 million a while ago to prevent Bromley going up in flames as the middle classes rioted in protest, which is neither a council tax, a land value tax or even an answer to the horrible deficiencies in local taxation in the UK generally, which is a whole area in need of massive reform given that the council tax we have was the hastily cobbled together answer to the disastrous poll tax. That council tax has long outlived its suitability for purpose.

Is the mansion tax an answer to the 50p debate, therefore? No, of course it’s not. We need that 50p tax rate to create a progressive tax system.

Just as we need a land value tax.

And a local income tax one day, maybe.

A proper wealth tax should also be on the agenda.

And lowering the thresholds for inheritance tax so it was payable by many more people is very obviously essential.

But a random mansion tax? No way. This has no merit whatsoever. So can we end that debate now, please?

Friday at the Lib Dem conference, Gateshead

Tax justice Comments Off

Mar 062012

For those at the Lib Dem conference on Friday, I’m taking part in a debate on whether Liberal Democrats should promote corporate taxation within the deficit reduction strategy, the issue of tax avoidance, and a Robin Hood tax. Panellists are:

David Babbs – 38 Degrees
Max Lawson – Policy Director, Oxfam
Richard Murphy – Founder, Tax Justice Network
Lord Matthew Oakeshott

The session will be chaired by Janice Turner, a member of the SLF Advisory Group. It’s at 20.15, in Hall 2, The Sage, Gateshead.

Note: you need security clearance to get in. I, apparently, have it.

George Osborne will strip £4 billion from developing countries in his coming budget

Development, Tax justice, Uncategorized 3 Responses »

Mar 062012

Action Aid has issued a press release today saying:

Ahead of the most important austerity budget in a generation, the government plans to open up a huge new tax loophole that will cost ordinary people around the world billions warns ActionAid in a new report ‘Collateral Damage’. The international development charity has revealed that this loophole will allow UK based multinationals to avoid an estimated £4 billion worth of taxes in developing countries and will also cost the UK Treasury £1 billion.

They add:

Until now, the UK’s anti-tax haven rules have provided a deterrent to companies seeking to avoid paying taxes in Britain and poor countries alike. The proposed changes will make it easier and more lucrative for UK companies to dodge tax in developing countries.

And as they note:

A recent UK opinion poll commissioned from YouGov by ActionAid also shows strong demand for tougher government action on corporate tax avoidance with 79% saying the government isn’t doing enough to tackle tax avoidance.

The results revealed widespread support across the political spectrum and in all regions.

· 74% of Conservative voters, 83% of Labour voters and 87% of Liberal Democrat voters said the government should be doing more tackle tax avoidance.

· 72% said that companies that use legal loopholes to avoid their tax bills in the UK or developing countries were behaving irresponsibly.

I am quite sure those figures accurately reflect sentiment.

And Action Aid are also right to highlight the problem with the UK’s reform of the so called ‘controlled foreign company rules’. I explained this issue for the TUC in June last year on pages 20 – 25 here. The abuse these changes in the rules will allow is real. The cost will be as big as Action Aid estimates. And that, in itself, simply adds to the tax abuse to the poorest countries of the world by the richest corporations in the world.

According to the Independent The Treasury said on this:

The Treasury denied creating a loophole and dismissed ActionAid’s estimates. A spokesman said: “The CFC rules are designed to protect the UK tax base from artificial diversion of profits. The best way to prevent tax avoidance in developing countries is by helping them to develop robust and stable tax systems which enable them to collect the tax they are owed. The UK delivers targeted and effective support to make this happen.”

First of all, no it does not deliver enough of that support.

Second, it is stalling on country-by-country reporting that would make it so much easier for these countries to get the information they need to collect the tax really due to them.

Third it is blocking automatic information exchange to them.

So candidly the response is a load of rubbish. Which is, I’m afraid, what I’d expect.

Oh dear, the Centre for Policy Studies really need to learn some tax and maths

Tax justice 5 Responses »

Mar 062012

Ryan Bourne of the Centre for Policy Studies published a rather nasty little blog the other day under the title ‘Rachel Reeves, Jo Swinson and Richard Murphy are wrong on the 50% rate‘. The first two were on Question Time last week. I wasn’t.

The CPS argument is becasue cutting the 50p tax rate is cheap it should be done.

Then Bourne proceeded to say that I’d wildly overestimated the total tax yield that the 50p tax will generate. I used a figure of about £4.7 billion last week. He said:

The Left’s favourite tax expert Richard Murphy appeared across the airwaves yesterday to discuss this issue. Richard has carved a niche for himself as an independent tax accountant who contributes widely to our public discourse.

Unsurprisingly, he was asked to appear on a variety of media outlets yesterday to defend the 50p rate. This in itself is an honourable position. But he repeated claims made in his blog that the 50p rate was actually raising £4.7 billion – far more than the Treasury and HMRC have estimated.

How had he got to this figure?

Well actually, I think you’ll now get my best estimate tomorrow Ryan – just wait and see the TUC report on this issue – but he said I’d done it as follows:

I accessed HMRC’s income tax liabilities by taxpayer marginal rate table for 2011-12. Sure enough, it says that additional rate taxpayers (the top 1% earning over £150,000) are liable for a total of £47 billion in tax (28% of total income tax revenues). Therefore it seems that Richard has just assumed that lowering the tax rate from 50% to 40% would be equivalent to reducing their tax liability by 10 percentage points, or £4.7 billion.

This is not how our tax system works. In fact, people earning over £150k don’t pay 50% of their income in tax. The 50% rate means that any income you earn over £150,000 is taxed at 50% – it’s what economists call a marginal rate.

Oh dear Ryan: you clearly got that wrong, didn’t you? Actually – you see, if I’d done what he’d suggested I’d have said that the extra tax would be 25% extra on the £47 billion – which is the proportionate increase on the tax yield of £47 billion that would have been due if all the income that had previously been due at the same fixed 40% marginal rate had now been due at 50%. That’s because 10% is 25% of 40%. And so the extra tax would have actually been, if I’d committed such an error, a whopping £11.75 billion. In that context it’s clear that £4.7 billion more than adequately compensates for the fact that not all the tax on anyone’s income is due at the 50% rate. But the CPS, unable to do some simple maths and blinded by some very simple numbers, missed that point. As a result of course they missed the fact in their haste to cast aspersions that I did not make such an error (although I note Tim Worstall has fallen for the same elementary mathematical mistake, amusingly). The 10% extra was on income – not on the tax take, of course. But even then if has to be treated with care.

As you’ll see tomorrow my actual estimate of potential tax yield is higher than £4.7 billion – I just used that as a headline last week whilst waiting for my full report to come out. And the CPS will find that if only they’d paid a little more attention to their sums and learning just how to use percentages the real numbers are bigger than those I’ve trailed. All of which makes keeping the 50p tax rate all the more important.

A fair tax commission?

Economics, Tax justice Comments Off

Mar 022012

From the Guardian’s letters page this morning:

The notion that bankers will be shamed by the latest revelations about Barclays’ tax avoidance plans is for the birds (The best medicine for cosy elites? A dose of shame, 28 February). “Nudge” theory is no substitute for regulation, and Treasury steps to close certain tax loopholes will have been choreographed with the City.

It’s abundantly clear from recent statements made by David Gauke, the exchequer secretary, that the government continues to see the relationship with big business as one based on “trust” and “constructive co-operation”. In other words, low-hanging fruit such as small businesses will continue to be targeted by HMRC, so-called benefit scroungers will continue to be unfairly demonised as a distraction, and the rich will continue to pay tax on a largely voluntary basis.

Surely it’s time for Labour and others on the left to set up a Fair Tax Commission to examine the legitimacy of a more progressive tax system which shifts the burden to taxation of wealth, land and the grossly overinflated incomes which have become the hallmark of 21st-century capitalism; and which considers serious steps to tackle tax avoidance and evasion which is estimated to cost the exchequer more than £100bn every year.
Chris Guiton
Crowborough, East Sussex

If I am honest, I hope to be doing much of the work described this year. I’d warmly welcome Labour, and others, involvement.

If we are to retain, and rebuild, our democratic system of government then such a task is vital. Tax cheating is destroying our freedoms, our markets, our prosperity and our futures right now.

I think others will join in. The big question is, will Labour?

And the Lib Dems?

And if the Tories will not, why not?

Sign up now if you want to keep the 50p tax rate

Tax justice 8 Responses »

Mar 012012

My good friend Howard Reed has written this on the blog this morning:

One of the more unsavoury aspects of the 2010 UK General Election campaign was the way in which the nature of the economic debate around the parties’ manifestos seemed to be unduly influenced by a few dozen corporate oligarchs writing to the Telegraph, Times or FT attacking, for example, Labour’s so-called “jobs tax” proposed increase in National Insurance contributions (despite the fact that the estimated employment effects of tax hikes in most of the empirical literature are tiny). And ever since then we’ve seen the same tactic at work at regular intervals – every few months one of the main broadsheets publishes a letter saying “scrap the 50p rate”, signed by the same businessmen. And the Telegraph is also now arguing that corporations should have the vote: presumably they would allow a few hundred oligarchs to dictate economic policy, introducing what amounts to a corporate fascist state.

In response to this kind of sounding off by “the 1%”, it would be good if the TUC could organise a letter saying “keep the 50p rate” or indeed “introduce a 60p rate”, signed by (say) five million trade unionists. It would have to be delivered to the newspaper offices in a freight container to fit all the signatures on it (although an electronic version would certainly be more environmentally friendly!) . That should give you some idea of the relative strength of the argument in terms of the numbers of people backing each position. Certainly opinion polling at the moment shows strong public support for the 50p tax rate.

OK, who is up to organising this?

The TUC?

Unite?

PCS?

38 Degrees?

Avaaz?

After all, this is about tax justice, building a fair society, redistribution from those who can pay to those in need, and this is about us all being in this together.

My suggested wording:

We believe that the 50p tax rate must stay. It’s an important symbol of tax justice, of our commitment to a fair society and our belief that those who can pay should properly support those who are in need in our society by helping provide them with the income they need – which they’ll spend to help create jobs in our economy and so boost growth.

Takers anyone?