In our tax brief last week, we reflected on the fact that the Chancellor of the Exchequer Philip Hammond used the word ‘fair’ no fewer than 19 times in his 8 March Budget statement, but not once did he say what he thought a fair share of income tax to be paid by the highest earners would be. The closest he came was to note with approval that the top 1 per cent of income tax payers now pay 27 per cent of all income tax, but is this fair?
Many of those who had tweeted cogently about tax fairness after the Budget fell strangely silent when I asked them what they regard as a fair share of income tax to be paid by the highest earners. My MP would not be drawn on the point. But I wanted to know what people think. So I asked readers of tax brief.
The results are now in and analysed in the chart below:
So what does this chart show?
Unsurprisingly, some respondents felt that the top 1 per cent of income-tax payers should pay less than the current 27 per cent of all income tax, which they currently pay.
More notable perhaps is the fact that the majority of respondents felt that the top 1 per cent should pay more income tax than they do now.
Comments provided with some of the responses are very revealing. For example, one person said ‘I think that the highest paid should pay the most tax’ while another observed ‘I find the levels of some people’s income to be grotesque, although I’m not quite sure where I would draw the 'grotesque' vs 'hard earned' line’.
Of course, there’s a limit to how much tax anybody can pay - that’s 100 per cent! Making that point, another respondent observed that knowing ‘what percentage of an individual’s overall income is paid in taxes (including NIC, VAT & Excise) by each income group is really important when thinking about tax fairness’.
Others felt that the time to unify income tax and NIC has come, while another observed that the tax rate might in some way reflect the effort put into earning an income: ‘Is it 'fair' that a tradesman or employee [working] 40 hours a week to earn £xxxx p.a, pays essentially the same income tax as somebody that has earned the equivalent in bank interest without lifting a finger all year?’
It’s clear from this that there are different ideas as to what fairness should look like. One respondent favoured the flat-rate tax argument, while another felt that ‘everybody should pay the same rate and that fairness would be that everybody loses the same proportion of the income they earn’. Finally, one respondent felt that ‘it’s important not to stifle entrepreneurial behaviours with an overburden of tax’.
Amidst this diversity of views, and looking sideways to other surveys which have been published during the last few days, it’s hardly surprising that most people don’t want their own tax bills to increase, whether income tax, NIC, fuel duty or VAT. There seems to be widespread support for the view that tax increases should apply only to other people who earn more, accompanied by a recognition that a high-earner may contribute to society not simply through the payment of a wide range of taxes but also by the creation of jobs, which boost economic growth and improve the society in which they operate.
So maybe that’s it. Perhaps most people are feeling this sense of tax fatigue for themselves. If more taxes have to be collected, then, the reasoning goes, those taxes should be paid by other people.
Curiously, that brings us back to another point we looked at last week – the massive tax loss of £11.4bn annually which the UK suffers as a direct result of tax evasion and the shadow economy. Without a doubt, equipping HMRC to attack that would result in much greater fairness in the UK, which would perhaps provide scope for reduced tax liabilities for those on low- to medium-incomes, and would certainly provide a massive boost for the Exchequer. We’ll be returning to that theme next week.
For more information please get in touch with George Bull, or your usual RSM contact.