Jeremy Hunt, Chancellor of the Exchequer, declared that the tax increases in his autumn statement would fall on the broadest shoulders. They didn’t.
Instead, as professor Arun Advani explains: “The majority of the tax rises fell on working people by freezing tax thresholds, raising £5.5-billion.
“The taxes on the broadest shoulders amounted to a reduction on tax-free allowances for dividends and capital gains, and a lowering of the threshold at which the 45% rate of tax starts, raising only £2-billion.”
So much for broad shoulders bearing the tax burden!
The UK tax system is regressive – it favours the rich. Here are just two examples of many.
Those who work for their incomes are taxed more highly than those whose income is derived from wealth; dividends and capital gains.
The Institute for Public Policy Research estimates that if capital gains were taxed in the same way as earnings and the separate tax relief on capital gains tax were abolished, £123-billion would be raised per year, falling to £90-billion taking into account tax avoidance. If dividends were similarly taxed it would raise £6-billion per year.
National Insurance (NI), which is effectively a tax, is regressive. Pensioners who continue to work do not pay NI at all.
The highest earners pay a lower average rate of NI than those on ordinary incomes: those earning between £9,569 and £50,284 pay 12% NI, but on earnings above £50,284 the rate falls to 2%.
A Warwick University report estimates that if the above anomalies were abolished, £22.9-billion would be raised per year.
Rachel Reeves, the shadow Chancellor of the Exchequer, says she will radically reform our taxation system.
A good start has been made by promising to abolish non-dom status, raising £3.2-billion per year, and private school charitable status, raising £1.7bn per year and promising to tax bankers’ and equity managers’ bonuses.
Tax breaks will be scrutinised, as will the disparity in taxation of earned and unearned income.
But this can only be the start. Radical reform must include an unequivocal statement that taxation of earned and unearned income will be equalised and favourable tax concessions for the rich ended.
Only then will we excise the embedded unfairness in our tax system and enable a Labour government to improve public services which under Tory rule are now on life-support.
A coalition of 40 charities says Britain’s tax system is broken and the wealthy should pay their proper share.
Most people agree, and want to hear how it will be done.