To understand this article you have to understand two concepts. The first is the Laffer Curve. If a government increases a tax rate from a low level it will collect more money. However once a certain tax rate is reached any further increase will lead to a REDUCTION in money collected, as people avoid the economic activity that attracts that tax. This has been proven many times. So after a point high tax rates are very silly and can only be applied as punishment or envy of those being taxed. They very certainly reduce government income by a huge amount.
The second concept is globalisation. People can very quickly move their money, their income or even themselves to another country where the tax rate is lower. Then we collect no tax. Many very high earners have moved from the City of London to Singapore, Dubai, Switzerland etc. Philip Green is the Chairman of Arcadia which owns Top Shop, BHS, Wallis, Burton and much more of the high street. He is worth £5 billion and lives in Monaco to avoid our taxes, as do many others. French people who work hard and earn well pay 66% tax, with their employer being forced to top this up to 75%. So the wealth creators have voted with their feet and left the country. London is now the sixth largest French city.
These two factors mean that George Osborne has his hands tied in how much he soaks the rich. Overdo it and the country will receive far less tax revenue. But he needs the money to pay for Gordon Brown’s disasters, so is going after the rich as hard as he possibly can. Already people earning over £160K a year, just 1% of the population, pay a third of all British income tax. Let’s look at what he is doing.
- In 1974 the top rate income tax was raised to 83% by Labour. With the 15% investment income surcharge added the top rate was 98%. These rates applied to incomes from over £20,000. Which resulted in the government collecting far less tax. Margaret Thatcher cut the top rate to 40% in the 1988 budget and so government tax income went up massively. Gordon Brown kept this 40% top rate right through 13 years of government, then, in a panic, increased it to 50% for the last few weeks of their government in 2010, this sharply reduced government income, two thirds of millionaires just disappeared. The Laffer Curve biting government income when the tax rate is too high. George Osborne kept the 50% rate until the 2013/4 tax year, when he reduced it to 45%. This will increase the amount of money he collects. It is not just the tax rate, it is at what income level the high rate is applied. In 1997/8 this was £26,100. By 2009/10 Gordon Brown had increased this to £37,400. George Osborne has reduced this to £31,865. So the facts are irrefutable, on income tax, under George Osborne the rich are being soaked more than under Labour and Gordon Brown. In fact Gordon Brown soaked the poor by getting rid of the 10p tax rate. Whist George Osborne has rapidly increase personal allowances from 6,475 in 2009/10 up to £10,000 now. massively favouring poor tax payers. Rich people do not get these personal allowances, punishing them further.
- Let’s look at stamp duty on house purchases. From 2000 the top rate under Labour was 4%. In April 2010, as part of the Labour panic, they introduced a 5% level for houses over £1 million. George Osborne has kept this and has not increased the threshold with inflation. So that is £50,000 in tax for every £1m in house value. A very big soak on the rich. In 2012 George Osborne introduced a new rate of 7% for houses over £2m. Soaking the rich even further.
- Now inheritance tax. In 1997 the threshold below which this wasn’t paid was £215,000 by 2010 Labour had increased this to £325,000, a sharp increase. George Osborne has not increased this. The tax rate is 40%.
- Next, Capital Gains Tax. Basic rate taxpayers are charged CGT at 18%, higher rate taxpayers are charged CGT at 28%. This higher rate was introduced on 23 June 2010 and has remained ever since.
- Vehicle excise duty (road tax). In 2009/10 this was band A £0, B £35, D £120 through to M at £405. Now it is A £0, B £0, D £0 then ramping up to M at £1,090. So George Osborne has reduced car tax for poor people with small cars to £0 and has more than doubled it for rich people with big cars.
- Rich people sometimes use loopholes to reduce their tax. George Osborne is closing these. Overseas investors avoided capital gains tax, this applied to UK expats selling property while based overseas. This has been closed. We have seen celebrities in the news repeatedly as George Osborne closes their complex tax dodging schemed and makes them pay. Tax reliefs for things like charity giving, business “losses” and mortgage offsets were used massively to create loopholes. Osborne has limited these to 25 percent of their income or £50,000 – whichever is greater. These are all massive soaks on the rich and something that Gordon Brown could have done, but didn’t.
Most millionaires are self made and people become rich by hard work, enterprise, investment and risk taking. Soaking them with high taxes like this is punishing them for everything that they do. Our long term economy would be best served by far lower taxes on the rich, thus rewarding success and allowing the creation of wealth in society. But we can’t do this just now due to the incredible mess that Gordon Brown created when he trashed the British economy.
Now let’s take a look at Hong Kong. A HK$ is worth about 8 pence. The personal income tax allowance, on which no tax is paid, depends on family size. It starts at HK$ 1,620,000 pa and rises to nearly HK$6 million pa for a medium sized family. If you earn more than that income tax starts at 2%, rising to 17% for the very highest earners. No wonder that, excluding the value of their homes, Hong Kong has 124,000 millionaires and that this number is increasing at 27% a year. The Hong Kong government does not work with socialist envy, it works with trying to make as many people as possible as rich as possible.
This is the best way forward for Great Britain, instead of punishing rich people why not make a lot more people rich?
“Average rates of tax were 11.3% for basic rate taxpayers, 22.8% for higher rate taxpayers, and 39.8% for additional rate taxpayers.” So the rich pay more than three times the rate of tax on their total earning that the poor do.
“The upper 50% of taxpayers by total income accounted for a 75.7% share of total income and 89.4% of tax liabilities.” So the less well off 50% of the population paid just over 10% of all income tax.
“The top 1% of taxpayers by total income accounted for a 11.2% share of total income and 25.1% of tax liabilities.” Amazing. Over a quarter of all income tax paid by just 1% of the population. We should be very glad we have got them.
Finally, if you go to THIS LINK you will see that without the tax paid by the bankers we would all be paying a whopping 50% more income tax.