From the TUC

Surprise! The richest people in the UK would like to pay less tax

01 Mar 2012, by in Economics

There has been widespread coverage of high US earners who are campaigning to pay more tax.  But not so the UK. Our ‘Patriotic Millionaires‘ still appear to be in hiding, instead replaced by 557 ‘business men and women‘ who want their own personal income taxes to be lower. Their claims are fairly extreme. Andrew Denny of Fix-a-Form asks :

Why are high earners treated like they have committed a crime and should be punished?

And James Milne of Balmoral Group Holdings, asks:

Sometimes I feel ‘why bother?

Leaving aside the question of whether the lifestyle of someone earning over £150k is comparable with a prison inmate, can it really be claimed that a tax rate of 50 per cent on income earned over £150k is a disincentive to work? The Government certainly doesn’t seem to think so – their much lauded Universal Credit policy will mean that the lowest earners in the UK face keep 24p in the pound as they increase their hours (in technical terms a marginal deduction rate of 76 per cent) a move which will apparently have radical impacts on ‘making work pay’.

This means that for someone on the adult rate of minimum wage, working a 35 hour week, the combined impact of income tax, national insurance and the withdrawal of Universal Credit as they increase their hours of work will mean that for even pound they earn they will lose 76 per cent, leaving them with net weekly additional income of around £51 more than if they weren’t employed (and with a minimum wage of £6.08 an hour and a benefits system that is far from generous their actual net in work income is unlikely to be much above £200 a week).  In contrast, for someone earning a salary of (for example) £160,000 a year for the same number of hours would find themselves losing a net total of 36 per cent of their income in tax (the combined impacts of the different tax rates they pay on their total earned income, and of national insurance), leaving them with weekly earnings of around £1,969.

As James Milne asks, why bother? But the problem with his argument is that despite poverty pay millions of people seem to – including many who presumably work in the businesses owned by the signatories of today’s letter (and I do wonder if they extend their own analysis of work incentives to the pay scales of their own staff).

Note: for more on why the campaign against the 50p tax is overstated my previous blog post is here.

2 Responses to Surprise! The richest people in the UK would like to pay less tax

  1. Cameron horses around, the rich are reminded why they bother to work, and the Pret-a-Manger Factor: political blog round up for 25 February – 2 March | British Politics and Policy at LSE
    Mar 3rd 2012, 10:01 am

    [...] Cutting the 50p tax-rate is again being debated in the media. Tax Research UK argues that it should not be cut as it serves to reduce social inequality, while the TUC’s Touchstone blog explains why the UK’s richest should still ‘bother’ to work.  [...]

  2. Why scrapping the 50p tax is wrong | ToUChstone blog: A public policy blog from the TUC
    Mar 17th 2012, 3:47 pm

    [...] amount of effort people are putting in. As I have previously shown, millions of lower paid workers go to work for far less pay as well as losing a far higher proportion of their income as they move from benefits into work. And [...]