Why is it that those who live off financial speculation are taxed so much less in the UK than those who work for a living?

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My old friend and long term colleague in tax justice and accounting reform campaigning, Prem Sikka, who now sits in the House of Lords, said this in that House yesterday as part of a longer speech on the injustices within Sunak's Spring Statement:

The Government's tax policies are loaded against work and workers. I will give your Lordships an illustration of how they work and how unfair they are; hopefully noble Lords have a pen and paper handy to note down the numbers I am going to call out. Let us look at a case with two individuals who each have an annual income of £30,000. One is a worker in a factory and the other speculates on shares and makes capital gains. The worker has £30,000 gross income and will receive a personal allowance of £12,570 from tomorrow; that leaves a taxable income of £17,430. This worker then pays income tax at a rate of 20%, which comes to £3,486, and will now also pay 13.25% of national insurance, which comes to £2,309. Their total deductions are £5,795 and their take-home pay is £24,205 out of £30,000 gross.

Now let us look at the speculator, who speculated on shares and made capital gains of £30,000. They will receive a capital gains allowance of £12,300. Chargeable gain—the phrase used—is then £17,700. This is not liable to 20%, as the worker pays in income tax, but to only 10%, so their capital gains tax is £1,770. The national insurance payable is zero because no national insurance is charged on capital gains. The total deductions paid by this speculator are £1,770 and their take-home pay is £28,230, compared with the worker's £24,205. Why on earth are workers penalised with higher deductions?

Prem is right to ask the question.

Why is it that those who live off financial speculation are taxed so much less than those who work for a living?

In what sort of society is it thought reasonable that this is the case?

What are the ethics that drive this?

Why should we tolerate it?

I am aware of how angry Prem is about this. So am I.


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