Britain is now being taxed so much that the pips are squeaking
BRITAIN has become dangerously reliant on a small-number of highly paid and wealthy individuals for its tax receipts. If these people decide to leave the UK, or for some reason suddenly earn or spend less money, the public finances would suffer disproportionately. That is one of the conclusions I draw from a fascinating report published yesterday by the Institute for Fiscal Studies (IFS).
The income tax alone paid by the 300,000 or so highest income individuals accounts for 7.5 per cent of all tax revenues. These people also pay large amounts of Vat and capital taxes. In 2012–13, 30 per cent of revenues from stamp duty on residential properties was derived from just 1 per cent of transactions: those on homes worth over £1m. The same year, the IFS reminds us, transactions in Westminster and Kensington & Chelsea alone accounted for more than 14 per cent of all cash raised by HMRC from stamp duty on residential property for the whole of the UK.
Just ten local authorities (nine of them in London and one in Surrey) brought in 29 per cent of residential stamp duty revenues; London accounted for 41 per cent of the total, up from 27 per cent in 1997–98.
Another development of note is that the overall tax take is set to rise. Revenues are forecast to increase from 37.4 per cent of GDP in 2013–14 to 38.3 per cent by 2018–19; and as the IFS points out, this is again predicated on higher earners footing a disproportionate share of the bill. This is worrying for a number of reasons.
First, the last time we saw tax revenues at this level was in 2000–01, just after the dot.com bubble, and the tax share of GDP would be 1 per cent higher than the average seen over the past 20 years or so, raising doubts about its sustainability. Second, the increase in tax receipts is meant to be led by dramatically higher income tax receipts (up by 1.0 per cent of GDP and capital taxes (up by 0.8 per cent of national income). These taxes are especially damaging and distortionary.
In fact, taxes on labour (income tax and national insurance) and capital (defined narrowly as capital gains tax, stamp duties and inheritance tax) have shot up in importance in recent years, as has Vat. Perhaps surprisingly, the relative importance of “sin” taxes (tobacco duty, alcohol duties, and betting and gaming duties) and fuel and vehicle excise duty has diminished; in the case of the former, probably because consumption of many of these products has slumped. The share of onshore corporation tax and North Sea taxes have collapsed.
Income tax, national insurance and Vat, the three biggest taxes borne directly by households, will be worth 66 per cent of total receipts in 2018-19, up from 59 per cent in 1989–90, 62 per cent in 1999–2000 and 64 per cent in 2007–08. Onshore corporation tax is down substantially, from 11 per cent of the total in 1989-90 to 5.7 per cent by 2018-19, with North Sea taxes down from 1.3 per cent to 0.6 per cent as oil supplies run out. But the truth about corporation tax – the headline rate of which has fallen dramatically – is that it is borne in large part by households (and not primarily by shareholders): research shows that its main impact is to push down wages, which means that at least some of the extra hit on families from income tax and Vat will have been cancelled out.
The share of receipts from capital gains tax, stamp duties and inheritance tax is set to surge to 5.0 per cent in 2018–19 of GDP, the highest since at least 1978-79, up from 4.5 per cent in 2007–08 and 2.7 per cent in 1989–90, led by a huge increase in the taxation of property.
The upshot from all of these figures, to my mind, is that the UK has reached its maximum bearable level of taxation. The pips are squeaking – it’s time for the politicians to back off and allow all taxpayers, rich, middling and poor, to keep more of their own money.
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