Regular commentator JenW posted this comment on the blog yesterday:
I sent an email to my MP regarding a wealth tax. His response, by letter, came today.
"While the UK does not have a wealth tax, we already have numerous measures in place that directly address your particular grievances across both asset and wealth taxes.
These taxes operate across many different economic activities, including the acquisition, holding, transfer and disposal of assets, and income derived from assets. The UK's taxes on wealth are broadly equivalent to those of other G7 countries.
The UK's progressive income tax system means the top 1% of income tax payers are projected to have paid over 29% of all income tax, and the top 5 % are projected to have paid over 50%, in 2019-20.
Thank you again for taking the time to contact me, please do not hesitate to do so again."
That was it.
How should I reply?
A good question. As I noted someone asking on Politics Live yesterday, "If Labour is not about shifting the burden of tax from working people and onto capital, what is it about?" I think that a variation on the theme.
I think my first response would be to look at data I produced in 2020, which remains as relevant now as then. I produced this chart then. What it did was compare total income with taxes paid, where total income was made up of both wages and the increase in wealth in a period:
Those who pay the highest overall rates of tax are those on lowest incomes. That is because of the massively regressive UK indirect tax system. To claim that the system is progressive is not true: the top 10% actually pay less overall than the decile below them. And when increases in wealth are accounted for, based on ONS data the tax rate is almost persistently and profoundly regressive. Nothing in the UK tax system counters this. That is why we need a wealth tax or a range of better taxes on wealth.
The argument about the wealthy paying more income tax is also misplaced. Firstly, their capacity to pay is so much higher than everyone else's:
Of course they pay more tax than everyone else: the top 10% earn more than the bottom 55% (or thereabouts) combined. Their capacity to pay is enormously greater as a result.
This differential has also risen over time. This data is from the House of Commons Library and is unfortunately by quintile and not decile and so suppresses top-end growth:
It is still apparent that the lowest earners are getting worse off, the middle earners are stagnating, and the best off are gaining. And that is before increases in wealth - accruing almost entirely to top earners - is taken into account (see above).
So the answer the MP provided is grossly misleading and plays inappropriately with the data in ways that do not give a true and fair view.
I would reply making these points.
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Great answer and a powerful rebuttal of this political group- think regarding the wealthy.
I am in the middle bracket for sure and ‘stagnation’ is about right – it feels right to me.
What I see in this MP’s answer though is duplicity.
We know that that the uncollected tax spills over into other areas of the economy and political economy.
And one of those areas is political funding where the rich are known to be generous with money that in my view at least could be collected as taxes. The idea is always to get a political economy that suits capital.
The MP JenW has treated you as if you are stupid.
You might want to point that out.
When I write to my MP it feels like I get selective cut and paste replies from the “official reply” library. They usually fail to understand or address the question and often present inaccurate or misleading data.It reinforces my resolve to add my voice and vote to removing my MP.
That is my experience
But then, Lucy Frazer is my MP
Could be worse. Mine is Danny Kruger!
It may be worth asking how we have arrived at the distribution of available resources to all; where 1% of the population have acquired so much of total resources that it pays 29% of all income tax. This is a distribution of resources more appropiate to a feudalism than a free, commercial country.
Agreed
According to the House of Commons Library (tax statistics, at January, 2023): “Income tax, National Insurance contributions (NICs) and Value Added Tax (VAT) contribute around three-fifths of all revenues. In 2021/22, £225 billion was raised from income tax, £161 billion from NICs and £143 billion from VAT”.
NIC and VAT account for over £300Bn of tax revenures; income tax, £225Bn. The top 1%, I hazard, are not paying 29% of VAT and NIC. Who is? Here it would be much more indicative to look at the profile of those who pay these taxes. Indeed these taxes hit the low paid hardest. The iniquity of the system is obvious.
I took all those facts into account in my work
There are only 32 million people paying income tax in the UK, which is a country of 68 million people. The top 1% of income tax payers is about 320,000 people. That means that more than half the people don’t even have enough income to pay income tax, and the top 1% is really the top 0.5%.
The annual income of the top 1% is over £180,000 each. But it is very concentrated at (and within) the top. Around £60,000 will get you into the top 10% of taxpayers. There are only 4 million people (again, out of 68 million) paying higher rate (40%) income tax, and about 450,000 paying the additional (45%) rate.
The top 1% receive about 15% of national income (a few percent more if you include taxable gains, which the take have most of too). And they pay about a third of a tax that amounts to a quarter of tax revenues. If you include the gains, about a quarter are paying at or about 45% tax. About quarter are paying under 30%, and a tenth around 10%.
The dirty secret is that wealth is hardly taxed at all in the UK. And that is why inequality has grown markedly.
The incidence of VAT is regressive. And NICs are regressive by design, with the rate dropping to 2% for higher earners.
All correct
Thanks
Thank you for that response. My redwall tory is going to get a long email today.
Why is it they never understand that people whose income is greater SHOULD pay more in tax because only they can afford it?
I understand that MPs pay puts them in the top 5%, even though they don’t believe it.
I put his response on the Facebook page of my local constituency. One response I got was to wish him good luck at the job centre next year. I doubt whether he will go to the job centre. He will go straight back into CCHQ to write tory policy, as he did for May and Johnson.
Thanks and good luck
I, too, say ‘Good Luck JenW’
(I have the same MP)
Thank you for your response, Richard, it set out clearly what I have been thinking about this for quite a while now.
I find that many people just think ‘income tax’ when talking about taxation. They use it as weapon against people such as benefits claimants, saying that they aren’t ‘taxpayers’ and so are not ‘contributing to society’. Which is patently absurd when no-one can avoid paying tax via VAT, council tax, licence fees etc.
And if the average gross income of the top 10% is equal to the combined income of the bottom 55% then it seems that the 29% income tax they pay must be a decided underpayment. Or am I not thinking straight?
I’ve sent the email, using information from you and from The Equality Trust, which also uses ONS statistics. I am surprised he could not find that out for himself.
Maggie’s and my MP was the one on Politics Live today after PMQs, Richard Holden.
I asked him for a true and fair response!
PSR, I know he treats me as if I am stupid, as he does most of the constituents who disagree with him. He bans us from his Facebook pages, then tells everybody else that all his constituents agree with him.
I reminded him that he is in the top 5% income bracket. I also reminded him that his pay increase this year was nearly twice as much as my 10% increase as a pensioner, and asked him if he thought that was fair.
Unfortunately I forgot to remind him that he only pays 2% NI on £30,000 of his income. I’ll keep that for the next response.
I use Writetothem as I know he will respond to that, as they keep a check on responses.
Good luck
And keep us posted
There was some HMRC data I saw a few years back, I think for about 2018, which was that the Top 1% paid 27% of income tax, but because they received 27% of all declared income (so not including secret stashes in Cayman!). That had risen from 1977 when the top 1% only had 7% of declared income.
Unfortunately you’re up against appallingly ill-educated drivel such as the following comment on Rafael Behr’s article in the Guardian today. The Guardian does nothing to educate its readers in these matters whilst pretending to be progressive! It’s a phoney paper yet calls facts sacred!
“Whatever Starmer says, sooner or later, with growth at 0.4% and annual borrowing at 200 billion a year, if people want to have any kind of NHS or public services at all, the UK will have no choice but to go begging to the EU and re-join the single market. Post-Brexit, the economy here has simply stopped expanding. You can’t fund public services properly unless the economy is growing and tax receipts are coming in from businesses. You can’t go on borrowing forever and there are only relatively few rich people and you can only get so much tax out of them.”
Depressing
The top earners receive enormous state hand-backs given their income is largely made up of financial gains taxed at c.20%. So the tax credits they receive dwarfs any Universal Credit a low income household would be entitled to
The work of the Equality Trust is helpful here, I suggest. The relevant page of income, wealth and taxation, and international comparisons:
https://equalitytrust.org.uk/scale-economic-inequality-uk
Thanks
I think everybody should play and pass on The Equality Trust’s obscene wealth simulator, just to make them realise what those billionaires can do with their money if they want to.
https://equalitytrust.org.uk/obscene-wealth-simulator
The Equality Trust is linking to a page on Tax Justice UK for sending a letter to your MP, however their narrative appears to be the “we need taxes to pay for stuff” line. Surely this is not the way to argue the issue with MPs who already misunderstand or willfully misrepresent the function of taxes:
“Tax Justice UK is proposing 6 taxes on wealth that could raise £50 billion a year to save our NHS and public services.”
Tax Justice UK, like the Tax Justice Network and Fair Tax Mark all promote the ‘tax pays for nurses line’ because they believe they will not get funding if they told the truth, of which they are aware. Paul Monaghan at FTM explicitly told me that. I have broken off relationships with all three. All three are directed on a day to day basis by people who know little about tax, economics or accounting and have no qualifications in any of them as far as I know.
I wrote to my MP about wealth taxes and received exactly the same reply. Sometimes I wonder why I bother writing to him as I have never received anything other than the stock CCHQ response but then I really just want him to not feel comfortable sitting on his decent salary and expenses while a chunk of the country can’t eat or heat
They do notice
Apparently 6500 people emailed their MPs, 98% of them.
So far we know two have had a response!
This is Tax Justice’s response to questions on a wealth tax.
https://www.taxjustice.uk/blog/wealth-taxes-will-cause-the-rich-to-flee-11-wealth-tax-myths-debunked
Some is good
On funding it is just wrong
See my comments earlier today
Linda, who is your MP?
Another 2019 redwaller?
Three points:
1. As you hint, the charts relate to income. Whilst capital taxes do have a progressive element (a 10% band for unused Basic Rate), the reality is that the less well-off don’t have capital, whereas by taking wealth as capital, the wealthy can limit their tax to 20% CGT (28% on residential property). IHT is irrelevant for the less well-off, and not that hard for the wealthy to at least mitigate. The latest CGT changes will impact the less wealthy more in practical terms by making more gains taxable.
2. A low-paid worker, say a care worker, working 35 hours at NLW and on Tax Credits (I presume Universal Credit works similarly but doesn’t come into an accountant’s sphere in the same way!) receives a pay rise. They pay 20% tax, 12% EE National Insurance, 4% or 5% Finance Sector Support Tax (workplace pension!) – and lose 41% off their Tax Credits, leaving them with a net increase of 22p or 23p for every £1 increase. Do the wealthy ever pay 77%/78% ‘tax’?
3. I would argue the underlying issue is not directly wealthy individuals within the UK charge to tax, but offshore investment funds, draining wealth out of the UK through rents and other returns on investments to be held overseas and all too often without any UK tax being paid. As well as owning (directly or indirectly) share capital and commercial property, these types of organisation are increasingly getting into residential property, no doubt aided by this Government campaign against the small property investor.
Thanks
I support Good Law Project and here is an example of HMRC approved loophole they have given to private equity fund managers, only paying tax at 28% while equivalent salary earnings elsewhere are taxed at 40%, I ask you!
I would urge as many of your readers as possible to visit Good Law Project’s website and sign this petition Thank you
“ Good Law Project
View in browser
Dear Robert,
In three weeks time we will hand in a petition to HMRC demanding the closure of the private equity tax loophole. We already have over 60,000 signatures, but we want to get it to at least 75,000!
Due to a tax break from HMRC, private equity fund managers earning vast – seven or eight figure – salaries pay just 28% tax on their income where primary school teachers and nurses pay 40% including National Insurance Contributions (NICs). This loophole wasn’t made by Parliament – but by HMRC after successful lobbying from the private equity industry in 1987.
We are campaigning to address the private equity tax loophole. And we need your help.
Sign the petition
Whilst the private equity loophole enables fund managers to withhold £600 million per year from HMRC, private equity also harms our public services in more direct ways.
In the last two decades, private equity firms have bought out more and more of the UK’s elderly care homes, children’s homes, and nurseries. By 2019, 50,000 UK care homes were owned by private equity-backed operators. Private equity firm managers primarily make their profits by engaging in ‘leverage buyouts’: they buy companies with borrowing, and then pay off the debt using the company’s assets and cash flow. Being bought in a leveraged by-out significantly increases a company’s risk of going bust.
The evidence also shows that private equity buy outs mean hugely increased prices for essential care – and often falling standards too – as the owners try to squeeze these vital public services for cash to repay the borrowing.
What’s more, of the five largest private equity-owned or backed care providers, four have owners based in a tax haven, meaning they are able to withhold still more tax from HMRC.
If you agree that the richest among us should be made to pay their fair share of tax, support our campaign by signing this petition:
Sign the petition
Good Law Project only exists thanks to donations from people across the UK. If you’re in a position to support our work, you can do so here.
Thank you for all your support,
Good Law Project team
Good Law Project
3 East Point High St Sevenoaks Kent TN15 0EG”
Thanks
Bit hard to find the petition on the Good Law website. Here’s a link: https://actions.goodlawproject.org/private_equity?utm_source=WP&utm_medium=blog&utm_campaign=private_equity140323
For those following at home, the “private equity tax loophole” is the treatment of carried interest – the interest in a private equity investment limited partnership that entitles fund managers to be paid a fraction of the partnership’s investment returns – as capital gains, which are currently taxed at 28%.
Historically carried interest has been taxed at even lower rates – for a time, at income tax rates (when the CGT rate was aligned with IT) but so-called “base cost shift” (subsequently abolished) made the effective rate much lower.
In this context, see the discussion at Dan Neidel’s blog. https://www.taxpolicy.org.uk/2023/03/10/carry/
And this fascinating interview with Jonathan Blake, who was a relatively junior lawyer at SJ Berwin and “in the room” when the tax treatment was agreed with Norman Lamont (the Financial Secretary) and the Inland Revenue in the 1980s, under threat of it all being done offshore instead. https://fund-shack.com/podcast/jonathan-blake-herbert-smith-freehills/
Thanks