Top 1 per cent of income taxpayers are bailing out the Treasury
THERE is no better snapshot of modern Britain than the regular updates from HMRC on the taxes we pay and the income we earn. The latest batch doesn’t disappoint.
There will be just 29.3m income taxpayers in 2013-14, 2m lower than in 2010-11 as a result of the increase in the personal allowance. There will be 4.3m higher rate taxpayers, 1.3m more than in 2010-11, largely as a result of the lowering of the threshold at which the 40p tax rate kicks in to just £41,450, a foolish decision which has dramatically increased the number of people facing steeper rates. In total, those paying the 40p or 45p tax rate will have increased from 10.4 per cent of all income tax payers in 2010-11 to 15.7 per cent in 2013-14.
Around 703,000 people will earn at least £100,000 this year through wages, bonuses, self-employed income, dividends, rents and interest. Of those, 320,000 will make at least £150,000 and 287,000 of these will pay the 45p top rate (this is significantly higher than the 236,000 that paid the 50p tax rate in 2010-11); the difference between these numbers is due to tax reducing schemes such as pensions.
Around 18,000 people will earn over £1m – up on 13,000 in the previous two years and 10,000 in 2010-11 – with 28,000 on £500,000-£999,999 – compared with 25,000 last year.
The figures reveal that it is nonsense to claim that those on high incomes do not contribute. The 6,000 people on £2m or more will pay more in income tax – £13.2bn – than the 12.5m taxpayers on under £20,000 a year, who will fork out a cumulative £11.5bn, as well of course as the many additional millions of people who earn less than the personal allowance and pay nothing. This is a remarkable fact.
The top 1 per cent will earn 13.7 per cent of all income but pay a record 29.8 per cent of all income tax. This also is an astonishing statistic – as recently as 2004-05, the top 1 per cent paid 21.4 per cent of all income tax but the share has shot up since then, reaching 24.4 per cent by 2007-08 and 27.5 per cent in 2012-13.
That said, the top 1 per cent’s share will undoubtedly fall back by a couple of percentage points next year. Some income that would normally have been reported in 2012-13, the last year of the 50p tax rate, was delayed and shifted into 2013-14, when the preannounced 45p rate kicked in. This helped push down the top 1 per cent’s share to an artificially subdued 26.9 per cent last year and to an equally artificial record this year.
Yet cutting the top rate of tax will do more than just shift a bit of around: it will boost incentives and make the UK a more attractive place to work in, gradually increasing reported income in a sustainable fashion. It was a horribly unpopular policy when introduced – but one which, over time, will bear plentiful fruit.
YELLENOMICS
JANET Yellen is a brilliant scholar with a wonderful personal story. Her nomination to chair the Federal Reserve, if approved by Congress, will make her the world’s most powerful woman, overtaking Germany’s Angela Merkel and the IMF’s Christine Lagarde. But while President Obama’s decision has captured the world’s imagination, Yellen’s actual monetary policies are regrettably likely to be little different from those the Fed has inflicted upon the planet since at least 1987.
It will be business as usual. Yellen’s Fed, just like Alan Greenspan’s and Ben Bernanke’s, will continue to pursue an ultra-activist policy, fuelling moral hazard and bubbles. It will persist in the hopeless belief that it can permanently reduce unemployment and to tinker as if there were no tomorrow. There will be minor differences, of course, and policy may be a little more dovish in the short-term, with much emphasis on forward guidance. But the big picture won’t change – and for that we will eventually all pay a high price.
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