Inland Revenue figures confirm what this site has been saying for some years. To collect tax from the rich you need to set a competitive tax rate. That helps you offer Income tax cuts to everyone else.
In the last year of Labour when the rate of Income tax for the rich was 40% the top 1% of earners earned 13.9% of all the income in the country. They paid 26.5% of the total Income Tax.
The advent of the 50% tax rate led to a predictable decline in the numbers of rich staying and paying, and to lower incomes. Their share of total income fell to under 12%. Self assessment tax receipts fell. With the reduction of the top tax rate to 45% the top 1% have got back up to near their 2009-10 position, earning 13.7% of total income and now contributing a record 29.8% of the total income tax. (HMRC estimated figures for 2013-14) Both the amount paid and the proportion of total tax would doubtless be higher if the top rate was back to Labour’s 40% rate.
October 10, 2013
Can there be any leftists who still deny the Laffer curve?! The evidence is overwhelming
October 10, 2013
The Laffer curve states that if taxes are too low or too high the maximum rate of tax revenues won’t be collected. It has never stated that lower taxes always produce more tax income.
October 10, 2013
Indeed but experience in the UK and elsewhere in the West is that receipts go up as rates go down. So we are clearly far above the optimal rates. The evidence above supports this view. On capital gains tax the evidence is even more stark.
October 11, 2013
Care to provide any evidence to support this. George W Bush reduced the rates for the wealthy and tax revenues fell, while Barack Obama raised both income tax and tax revenues.
October 10, 2013
John, have I read this correctly?…..Do I detect the slightest chink in the armour of uanime5? The merest hint of some acknowledgement that lower taxes can actually bring in increased revenue. Quite contrary to any previous statement ever made on this blog by uanime5 about tax revenue…. Mark this day well, 10th October 2013……
zorro
October 10, 2013
It’s not the Laffer curve that is in question, it’s where the peak is. Nobody would dispute that a tax rate of 100% would be ridiculous and a tax rate of 0% would bring in no income, so there has to be a peak somewhere between those extremes. Most studies find the peak is probably around 70%, certainly greater than 50%. Not that a 70% tax rate would be a good thing of course.
Reply The peak is somewhere around the international average which is around 38%. The more you try to charge above the majority of other countries the more revenue you are bound to lose.
October 10, 2013
The peak is no where near as high as 70%. You have to bear in mind that money that is not taken off people in income tax is anyway spent, invested or saved by them and gives rise to other tax income and other job creation. Surely is is below 40% it also varies as other taxes vary (such as NI and VAT increases).
It is the total tax take that matters from the governments point of view this from all taxes VAT, Income tax, duties, NI etc. So taking 20% of GDP of a country twice as rich give the same as taking 40% of GDP of one that is crippled by a 40-50% largely parasitic state sector.
Not that government should work on the basis of maximum tax revenues which I estimate is about 40% of GDP but from all taxes. They should actually aim for what produces maximum good for all and that is perhaps 20% of GDP.
This is more than enough for all the state needs to provide.
I left the UK about 5 years ago, I will not be returning. So from my family alone they will have lost perhaps £15M million over my expected 30 years of life expectancy. Not to mention the money I spend on schools, food, housing etc. and the jobs and businesses I might have created or expanded in the UK.
October 10, 2013
But Cameron and Clegg clearly prefer to damage the economy and raise less tax too, just for a superficial and idiotic appearance of “fairness”.
October 11, 2013
And they are prepared to let energy take the blame for their stupid expensive green ideology and get the energy companies to collect their taxes for them and then have the cheek to blame them for price rises. The same applies to air travel and the companies are making it clear who is responsible for the huge fuel duty and long haul taxes imposed by government. The amount of taxes imposed on our lives and disguised by the government so they are able to say your income tax is x is ridiculous. We are taxed todo much. Stop spending.
Life logic is right there should be a limit on any borrowing, if the government wishes to borrow above tax income the public should be able to vote on it as we pay the bill. Over 300 tax rises in three and half years, where is the significant cuts? Overseas aid still continues as does the abuses of it, including the EU spending a sixth of OUR money to causes we have no say whatsoever. Madness.
October 10, 2013
Reply to reply: There is no correlation between the level of tax and economic success.
Countries with high-rate tax = 40% include:
Germany, Norway, Japan, France, Netherlands and Israel
There are many reasons why countries are the way they are. Your arguments are far too simple.
October 11, 2013
Of course it is not just the rates of taxation and the amount the state wastes but this is a very important factor.
It is mainly how much the state spends and how much of that is just wasted. In the UK we have a dreadful systems, high expenditure largely wasted on daft things like wind farms, pointless wars, religious energy, poorly regulated banks, poor infrastructure, little real investment and absurd over regulation of everything. This and an over paid, over pensioned state sector much of which does nothing useful and often just inconveniences the productive for much of the time.
October 12, 2013
Credible
The fact that you even think that Japan and France are economically successful makes you look silly.
Allied to the fact that Germany and Norway have both lowered their taxes and the Netherlands has announced they are downgrading their entire welfare system.
http://www.independent.co.uk/news/world/europe/dutch-king-willemalexander-declares-the-end-of-the-welfare-state-8822421.html
What is it with socialists and their deluded desire to live in a fantasy world?
October 10, 2013
The Laffer curve is often used as a blanket ideological justification to reduce income taxes, especially the higher marginal rates paid by high-income individuals, regardless of where current tax rates might lie on it and a holy symbol of the faith of supply-side economics. The rich have seen large increases in income during the past decades unlike the rest of us and this pandering to them and the loss of tolls on services that they are large users of is completely unacceptable. Bluffs need to be called. This still stands so unless you have anything new to add ram it again. Since last times again that is.
October 10, 2013
How can you say the actual figures are a bluff
Blind adherence to dogma that defies facts Baz
October 10, 2013
Bazman & Uanime5 think Dumb & Dumber is a training video
October 11, 2013
Like lifdogic you need to answer some basic question about the minimum wage and how many private companies are kept in business by state expenditure? In essence. How does the beer get into the glass in a pub? I mean the money trail not literately. Much of it for me as a sub contractor untimely comes from the government spending money on the building industry, so much for your anti socialist ranting. Pub is going to be down one customer straight away… Mortgage? Haven’t got one. Can’t touch me on that. What would be the knock on effect of pulling the plug as you so desperately want? It would all just self correct with the gap being filled by the freed up money? Dreaming and you know it. Laugher curve for sure. Taxes would have to rise to pay more benefits. Cut benefits too? Yeah right! No job, no benefits, no housing? Oh dear…It would all be the fault of the population though wouldn’t it for refusing to work for low wages!? Not helping business and so on? Guess what? Ram it.
October 12, 2013
You always talk in extremes Baz
All modern economies are mixed ones with the State and private sector sharing a proportion of total national spending
Plainly every Govt spends on projects which creates work for private sector companies.
The real debate is about wasteful spending and what size the State should be.
50% is too big
But no one on here is calling for zero!
October 11, 2013
Again you have no coherent arguments or facts to support the case you are trying to make
October 11, 2013
Read it again.
October 12, 2013
Why read your made up rambles again, you STILL haven’t provide a shred of evidence for anything you make up. Less than 3% of the UK workforce are on NMW.
October 12, 2013
There is no evidence of tax evasion low wages and massive rises in income for the rich? Is this what you are claiming? Like millions of new jobs have been created in the private sector? You need to look at the realities of what you are claiming.
October 15, 2013
When there is a danger of socialist governments gaing power and forcing through legislation to reduce prices, no power company would invest long term unless there are guaranteed minimum prices in the future.
Would you invest your own savings without such safeguards?
No?
Thought not
October 17, 2013
The idea of risking your savings in a business is absurd. We all agree.
October 10, 2013
Mr Redwood,
You seem to be labouring under the misapprehension that the tax system is designed to raise revenue rather than punish success.
October 10, 2013
Good comment Bob.
October 10, 2013
In the last year of Labour when the rate of Income tax for the rich was 40% the top 1% of earners earned 13.9% of all the income in the country. They paid 26.5% of the total Income Tax.
The last year of Labour was 2009-2010. During this time the economy was growing at 2% and many wealthy people took their bonuses early to avoid the new tax. The latter factor means that it’s not a good base point for determining how much in taxation the wealthy pay in an average tax year.
The advent of the 50% tax rate led to a predictable decline in the numbers of rich staying and paying, and to lower incomes. Their share of total income fell to under 12%. Self assessment tax receipts fell. With the reduction of the top tax rate to 45% the top 1% have got back up to near their 2009-10 position, earning 13.7% of total income and now contributing a record 29.8% of the total income tax.
The 50% tax rate lasted from April 2010 to April 2013. Given that the wealthy took their bonuses before April 2010 so they could avoid the higher rate of tax, then after Osborne announced the cut in income tax they delayed their bonuses until 2013 it’s no surprise that tax revenues went down when the 50% rate was in force. Had Osborne kept the 50% tax rate the wealthy wouldn’t have delayed taking their bonuses for 2 years.
John you’ve ignored that during this time period because of the poor management of the economy by the Conservatives growth went from 2% to 0.2% and real incomes fell by 5.5%. Both of which would have reduced the tax revenues, so it’s misleading to claim that the 50% tax rate was solely the cause of any reduction in tax revenues.
You’ve also ignored that during this time period tax revenues not only fell from income bands within the 50% tax rate but many income bands within the 40% tax rate. Care to explain why people in the £50,000-70,000 tax band paid also less in tax revenue during this period. It can’t be due to the 50% tax rate because it didn’t effect them.
In conclusion comparing tax revenues from a year that benefited from the wealthy taking their bonuses early, to a year with economic problems where the wealthy were deferring their income, to a year which benefited from this deferred income will produce a grossly inaccurate assessment that doesn’t prove anything. We will need to wait until at least 2014 to get an accurate picture of how much tax revenues the 45% tax rate raises.
October 10, 2013
“John you’ve ignored that during this time period because of the poor management of the economy by the Conservatives growth went from 2% to 0.2% and real incomes fell by 5.5%”
Once again another unbelievable dose of claptrap from uanime5.
Who were responsible for the problems in the first place ??????
George Osborne’s strategy has proved successful against all the doom and gloom predictions from Ed Balls.
Once again, Labour has screwed the economy and the Conservatives have had to pick up the pieces and fix it. They get no thanks from people like uanime5 who have such poor short term memory that they will simply vote labour again and the whole cycle will continues.
When will they ever learn ????
October 10, 2013
The economy has fallen under the Tories that is a fact and not Labours fault. A small rise proves nothing.
October 10, 2013
Not true Baz.
The economy is growing and despite your many previous claims that these top tax rate reductions would reduce revenues you have now been proved wrong.
Some humility and contrition would be better than your continued deluded wriggling..
October 11, 2013
The economy flat lined for 3 years and the current growth is nothing to do with Osborne’s policies but because most other countries have now recovered.
Since the 2013/14 tax revenues won’t be known until April 2014 your claims of increased tax revenues are clearly wrong.
October 12, 2013
They are not my claims of increased tax revenues Uni
Read Mr Redwoods article again.
They are from the ONS and clearly are not wrong.
October 10, 2013
Because, as Liam Byrne admitted, there was no money left and the gravy train had to stop !
What was Osborne supposed to do – continue to spend recklessly like Gordon Brown until there was no line of credit left and be forced to call in the IMF ?
I seem to remember Dennis Healey having to do exactly that : another Labour mess the Conservatives had to clear up.
The problem was that over 13 yrs. Tony Blair abdicated his responsibility for the economy to Brown who ran riot, increasing public spending with no attempt to improve the efficiency of public services.
The evidence is before us in every part of the public sector. The classic example is the NHS pay deal negotiated by Labour under which GPs doubled their income while at the same time they were able to give up after hours care at huge cost to the taxpayer – and patients.
Blair should have replaced Brown before his second election win. The fact that he didn’t leads me to think the Brown knew where a few embarrassing bodies were buried.
How can you have such a short/selective memory, Bazman ?
October 11, 2013
You are blaming the economic downturn on Labour spending. As I have pointed out before the bankers crashed the economy. Not Labour spending on welfare as you see it. The bankers gravy train had to stop. It was not the fault of the working poor or the population having services. Had a labour government not spent on the country the average person would have received very little as the bankers and business did not want to share as seen by the income of the average person changing very little.
I’ll remind you again. The bankers crashed the economy not Labour to tell this is black propaganda and fantasy.
October 10, 2013
The brass neck of Labour politicians is unbelievable. You might think that having wrecked the economy they’d be so ashamed that they’d shut up for the next five years at least, instead of constantly carping about the present government. But they get away with it, and do you know why? Because a certain Tory politician let them off the hook – one outburst in early 2009 about printing money being the last resort of desperate governments, and then silence during the rest of the year while they had £200 billion printed, of which £198 billion was used to fund their budget deficit. No wonder the public began to think things couldn’t be too bad when the government seemed to be still sailing along as usual; no mass sackings of public sector workers or drastic cuts in their salaries, no 20% lopped off pensions as in some other countries. Their plan was for the pain to be deferred until after the election, when the new government could take the blame, and it worked a treat thanks to the weakness, laziness or arrogance of that Tory politician who should have been relentlessly exposing them and hammering them into the ground every day of the year leading up to the election.
October 11, 2013
The economy was growing at 2% when Labour left office, this fell to 0.2% after Osborne’s austerity. It is the Conservatives, not Labour, who wrecked the economy.
October 10, 2013
“Once again, Labour has screwed the economy and the Conservatives have had to pick up the pieces and fix it.”
Well yes but Cameron and Osborne are pretty useless at it. They should have started by firing half the state sector, cutting taxes, stopping payments to the feckless and cutting all the daft regulations this over 3 years ago.
October 11, 2013
Does this state sector include anyone working for private companies that carry out work and contracts for the government such as building of infrastructure? Last time many state workers were laid off they were taken back at extra expense via agencies. I know thinking other than blind think is difficult for you, but much of the economy relies on this and the knock on effect to private companies would be great. Not all private industry is private housing subsidised by housing benefit Rigsby.
October 12, 2013
You can explain how those on low incomes being targeted is justified over other sources of revenue that should have been collected and how this no collection has improved the economy and lives of the population as you are the cheerleader for no tax Britain. They have sensibly invested it and more wisely spent it than the government? No they have not as this evasin could have been spent on not having a bedroom tax for a start. Yes tax.
http://www.independent.co.uk/news/uk/home-news/35bn-in-tax-not-collected-8874621.html
October 10, 2013
They will never self evaluate because it is a dogma for them.
Facts just get in the way
October 11, 2013
Given that the economy was growing at 2% between 2009 and 2010 when Labour was in power and the growth sharply declined after Osborne took over it’s clear which party was responsible for the poor growth. It was Osborne’s policies that trashed growth and caused the economy to flat line for 3 years, not Labour’s.
October 10, 2013
I take it we are quoting HMRC Table 2.5 for “Additional Rate” taxpayers. In which case JR, your above assertion is on dodgy ground, as u’5 suggests. The “Higher Rate” data for the middle class consumers (who spend most buying stuff), you have ignored. Pre-coalition there were less than 3 million higher rate taxpayers paying £40 billion. This year there will be 4.3 million paying £61.1 billion.
Still, be thankful that our million a year plus City spivs, are now paying circa 41% income tax instead of 43.5%.
reply The numbers of very high earners dropped.
October 10, 2013
Thanks for your last para Uni
I will hold you to your latest new method of denying the obvious.
October 11, 2013
Why on earth do so many people think all the wealthy work for banks in the city of London and get bonuses whose timing they can control? I suspect many are business owners whose businesses train and employ people and invest in the UK.
October 10, 2013
I would like to see urgently a more modest beginning. The unfairness between single income households and two income households in the matter of child benefit is gross. If a household has one income of £60,000 it receives no child benefit. If a household has two incomes of £50,000 it receives full child benefit. This idiotic anomaly has come directly from the feminist lobby. If the Conservative Party is sincere about its commitment to families, it should end it.
October 10, 2013
It’s even more unfair when you consider that the household with a single earner on £60K is already paying considerably more income tax than the household with 2 earners on £30K each.
I am not voting conservative again until this shambles is fixed.
October 10, 2013
Nor will many others.
The standard of living of a family on benefits with their rent paid in London is very close to that of a family earning up to £120K and paying about half of it to the state, paying for child care, travel to and from work, their work clothes and lunches. Why bother?
October 10, 2013
What rubbish
October 11, 2013
Just do the numbers.
Income £120K – tax &NI circa £58K – Pension contributions £10K – childcare 15K – travel to work 2K other costs of working clothing, lnuch etc, 3K, council tax £2K, rent £20K leaves £10,000 for food, heating, holidays, car, heat and light etc.
On benefit you get rent, council tax, and about £102 PW for a couple. I think I would prefer the time to myself to the extra £5K PA. Then I could fix my own car and cook garden, barter and shop more efficiently.
October 10, 2013
Yes, but the inherited millionaire boys don’t really care about that sort of detail.
October 11, 2013
@Credible
“the inherited millionaire boys don’t really care”
That’s a rather sexist remark.
October 11, 2013
I had George Osborne and David Cameron in mind who are boys and are at the top of government.
October 10, 2013
I see the round of energy price rises has now started.
Suppliers blaming cost of purchase on the World market, Government green taxes, and the cost of funding Government driven insulation schemes (funded by the energy companies).
Another example of Government playing about with commercal business and reaping the unitended consequenses of their decisions.
But surely even a fool recognises that if you increase costs, prices have to go up to cover them.
Who did the government think was going to pay for the green taxes, other than the end users. !!
Reply Faster price rises for energy ahead of any possible Labour government with their 20 month freeze is entirely predictable! Clearly some energy companies believe the opinion polls showing Labour ahead and do not allow for the fact they may well change prior to 2015.
October 10, 2013
Looks like the Post Office sell off is going to be a success, although difficult to define success when the Government/taxpayer is now going to have to pay for the black hole in the Pension fund.
Remind me, how much is the black hole we are going to have to fill ?
October 10, 2013
@AJ
“Remind me, how much is the black hole we are going to have to fill ?”
About the same as one years worth of foreign aid I believe.
Reply If only! We are still borrowing almost £10bn extra a month.
October 10, 2013
Reply to reply,
I think AJ was referring to the black hole in the Royal Mail pension fund not the budget deficit.
October 10, 2013
Brian
“Black holes”
Correct.
Although we seem to have so many black holes, that it is no wonder some may get confused with which ones.
October 10, 2013
Interesting to see how when Labour the energy companies who will not invest any money in power station unless they are subsidised by the taxpayer for decades despite massive profits in the past, their bosses immediately threatened blackouts! Now lets imagine if the power workers had threatened this what the Tories would have to say? The lights will go out not now due to the workers, but large foreign owned companies in a monopoly holding us to ransom in collusion with politicians This is now what it is now about.
October 10, 2013
That’s not what the power companies actually said Baz
They just said the rapid growth in demand is not going to be met if we continue to delay decisions on new power generation and think renewables is going to fill the gap.
Its no threat.
Just a statement of the obvious.
October 11, 2013
The decision being to pay them massive subsidies to build new power stations.
October 12, 2013
No massive subsidies for private sector green power is there Baz?
Or is that OK in your fantasy world.
October 11, 2013
Odd how the power companies refuse to build new power plants and demand that the Government pays for them. You’d think that the private sector would be investing in these things.
October 12, 2013
Uni
There isnt a decent return on the investment if the Government can control future prices, whilst adding extra costs in the form of green energy requirements.
So they need to get guarantees they wont be losing money in the years ahead.
Would you invest your money?
October 13, 2013
The power giant Iberdrola operates with price controls in their own country as do the French and German ones and how much subsidies does nuclear get not to mention other non green subsidies by not have to pay for the consequences of CO2 emissions and other pollution? The answers lie in energy conservation not producing more expensive power for these companies to sell without risk. Low usage and consequently bills, in my house because of this. No hair shirt either. Since 1999 by the way. The rich do not care as energy for them is cheap at least personal energy is.
Read something sensible for a change and ram it.
http://www.theguardian.com/business/2013/oct/13/price-freezes-osbortne-capitulates-power-companies
October 14, 2013
You say “price controls” Baz but very carefully do not inform us if these controls are generous or not.
Rather important some might say.
October 15, 2013
They do not want price controls they want guaranteed subsidies so they can operate without risk funded by the state. Is that socialism? The socialism of losses and the privatisation of profits. Paid for badly running the job.
October 12, 2013
Whose fault is it that the opinion polls show a Labour government next?
Your leaders are too blind to see the obvious result of cow towing to Libdem policies, reflected by about 8% of the vote in preference to following UKIP ones at nearer 20%!
October 10, 2013
Are there ny other factors which could take their total earning potential back upto 13.7%, rather than tax alone. May it be that the employment and production is up , therefore making more money for the top earners?
October 10, 2013
margaret
Please explain how employment and production going up means more money for top earners ? They are both input costs.
While you are at it you might also care to explain who these top earners are and what you mean by earnings. Are you talking salaries of managers, dividends of owners, capital gains of asset sellers ?
Someone on here once admonished another poster for writing generalisations.
October 11, 2013
Obviously a banker on top wages with bonuses is an earner, however I am following on from the article which in itself discusses top earners. The questions I posit are not totally concerned with the above said Laffer curve which I believe was invented for the justification of lower taxes for these earners . Don’t tell me that investment and therefore production and therefore sales do not have any returns or else no one would produce. Business is not there for altruistic means, unless you live on another planet.
October 12, 2013
Margaret
You really ought to find out what you are talking about. You jealous types are obsessed with bankers. There are fewer million pound a year salaried bankers than there are professional footballers, why dont you ever mention them. Please explain why tax rates for your hated bankers should also be applied to the 4 million odd small business owners.
The laffer curve is a mathematical model, its also common sense to anyone who understands people and human behaviour. You said employment and production, if you had the remotest clue you would know that those two things are OVERHEADS and do not equate to profit. Sure a business needs to FUND those things in order to grow and of course they cant if you take away the money in tax.
I increasingly am led to believe by the kind of nonsensical posts on this board that socialists are just a group of people who are jealous and angry with successful people and couldn’t care less about the economic success and prosperity of society they just don’t like seeing some people with large amounts of money
October 10, 2013
It is pleasing to see the predictions Mr Redwood made (and supported by many on this site) now being proven correct.
The richest are paying considerably more tax than they were under Labour when the top rates were higher.
I hope we see those who said it would never happen say that they were wrong.
And accept the “tax cuts for millionaires” slogan they keep repeating like some Marxist mantra is wrong.
If you want punitive top rates to satisfy your dislike of rich people then fine. But if you want to raise revenue to spend on health, education and welfare, then you need to be pragmatic and set rates at a level which generates good revenues.
October 10, 2013
the “tax cuts for millionaires” slogan they keep repeating like some Marxist mantra is wrong….
Someone should point out to the shadow cabinet that they are state funded millionaires…their pension funds are worth over 2m each!!! At least I did not fund Cameron or Osborne’s greater wealth from my taxes.
The tax cuts for millionaires mantra is classic Labour: Chippy and dumbing down debate, thriving on the spiteful dislike of other’s success that is inherent in the British psyche.
Reply An MP’s pension is not worth £2m plus!
October 10, 2013
They have seen large increase in income to pay for these rises, so don’t give us bleeding heart Marxist speech they have done quite well out of their own communism called the City and its banks taxing the rest of the country.
October 10, 2013
They…as you put it refers to a few hundred people out of many hundreds of thousands who pay top rates.
The figures are clear.
No amount of loony left wing bluster changes the figures.
October 11, 2013
Those who earn the top rate usually control how much their employees are paid. So they’re in no position to complain about how little tax other pay, when they pay them so little in wages.
October 12, 2013
Unaime5
Despite all the evidence and links Ive provide you continue to insist that the bulk of the workforce are minimum wage supermarket shelf stackers.
I suggest that your posts have no validity what so ever. Why dont you tell us how much you earn and how much tax you pay?
October 10, 2013
Care to tell us exactly who has given “them” ie all top rate taxpayers, these large rises in income you moan about Baz?
Please remember when you reply that only a tiny percentage of them work in the City and Banking.
Would you be happy to pay more tax yourself if these wealthy citizens paid a lesser proportion of the total?
October 11, 2013
The top rate taxpayers are usually in a position to set their own salary. So they’re paying themselves huge amounts of money.
October 12, 2013
Care to provide any evidence of this ridiclulous assertion?
October 12, 2013
Uanime5
“The top rate taxpayers are usually in a position to set their own salary. So they’re paying themselves huge amounts of money.”
Ha ha ha I don’t even know where to begin with a stupid statement like that.
It just shows how completely ignorant socialists are of how money, earnings and business work.
Even if it was remotely true ( which it isn’t) it still wouldn’t be a problem as as well as the income tax and national insurance paid on earnings every penny just about that is spent also gains the government another 20% in taxes.
October 12, 2013
They sit on each other remuneration committees and decide how much each other should be paid. which is nice…
October 11, 2013
Bar Room Economics
“Suppose that every day, ten people go out for beer and the bill for all ten comes to £100. If they paid their bill the way we pay our taxes, it would go something like this:
The first four (the poorest) would pay nothing.
The fifth would pay £1
The sixth would pay £3
The seventh would pay £7
The eighth would pay £12
The ninth would pay £18
The tenth (the richest) would pay £59
So, that’s what they decided to do.
The ten drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve. “Since you are all such good customers,” he said, “I’m going to reduce the cost of your daily beer by £20.” Drinks for the ten now cost just £80.
The group still wanted to pay their bill the way we pay our taxes so the first four were unaffected. They would still drink for free. But what about the other six – the paying customers? How could they divide the £20 windfall so that everyone would get their “fair share”?
They realised that £20 divided by six is £3.33. But if they subtracted that from everyone’s share, then the fifth and the sixth would each end up being paid to drink their beer. So, the bar owner suggested that it would be fair to reduce each drinker’s bill by roughly the same amount, and he proceeded to work out the amounts each should pay. And so:
The fifth person, like the first four, now paid nothing (100% saving).
The sixth now paid £2 instead of £3 (33% saving)
The seventh now pay £5 instead of £7 (28% saving)
The eighth now paid £9 instead of £12 (25% saving)
The ninth now paid £14 instead of £18 (22% saving)
The tenth now paid £49 instead of £59 (16% saving)
Each of the six was better off than before. And the first four continued to drink for free. But once outside the restaurant, the drinkers began to compare their savings.
“I only got a pound out of the £20,” declared the sixth. She pointed to the tenth man, “but he got £10!” “Yes, that’s right,” exclaimed the fifth. “I only saved a pound too. It’s unfair that he got ten times more than I did” “That’s true!!” shouted the seventh. “Why should he get £10 back when I got only two? The wealthy get all the breaks” “Wait a minute,” yelled the first four in unison. “We didn’t get anything at all. The system exploits the poor”
The nine drinkers surrounded the tenth and beat him up.
The next night the tenth man didn’t show up for drinks, so the nine sat down and had beers without him. But when it came time to pay the bill, they discovered something important. They didn’t have enough money between all of them for even half of the bill.
The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.
For those who understand, no explanation is needed. For those who do not understand, no explanation is possible! “
October 11, 2013
Taking your very nice Bar Room Economics analogy a bit further. Your version assumes that everyone pays what they are supposed to.
What if the richest manages to persuade the bar owner that he doesn’t actually need to pay the full £59 this time but instead avoids paying £30 and just pays £29. Some of the others pay a bit less too, but that only amounts to a few pounds. This continues and the debt owed to the to the bar increases.
Eventually the bar owner says he can’t run the business without enough income and asks the men to pay up what they owe. The richest refuses because he says he can’t afford to pay so much. The bar owner has no choice but to put up the prices. The poorest can’t afford it and stop coming. The richest man keeps avoiding paying what he should. There is not enough money coming into the bar and the bar owner has no choice but to close it down.
October 12, 2013
Credible
Oh dear oh dear oh dear
What if the rich man says to the bar owner wow I love your place here’s a £1000
what if the rich man says I love your pub here’s £1m for it.
Your argument is just plain stupid
October 11, 2013
Your analogy has 4 problems:
1) You forgot to explain how much beer each person would drink if it was distributed according to the amount paid. If 10 beers were bought then:
– The 4 poorest would get whatever was left after in the glasses after everyone else had finished.
– The person who pays £1 would have a tenth of a glass.
– The person who pays £3 would have three tenths of a glass.
– The person who pays £7 would have seven tenths of a glass.
– The person who pays £12 would have one pint and two tenths of a glass.
– The person who pays £18 would have one pint and eight tenths of a glass.
– The person who pays £59 would have 5 pints and nine tenths of a glass.
2) The tenth man cannot simple leave unless he can move his job to another country. If the tenth man can’t take his job with him then even if one rich person leaves the UK another person will work in his job and nothing will change.
3) An economy where the majority of the population pay very little in taxation because they earn a pittance isn’t a good thing.
4) The UK doesn’t have a flat rate of tax so the tax cut won’t work the way you claim it does. For example if the tax cut only applied to the upper rate of tax then only the tenth person will benefit from it.
By contrast if you apply this cut to the lower rate of tax then everyone who pays will pay slightly less but because there’s thresholds for all the tax bands there’s a limit to how much can be saved. For example the fifth to seventh men will make a saving of under £2, while the eight to tenth men will save a maximum of £2.
October 12, 2013
Your logic is a fantasy of how humans trade Uni
Go into a supermarket and see if you can purchase goods in your system of proportion to income and see how far it gets you.
October 12, 2013
Thanks Unanime5
You have successfully explained why you don’t understand the world.
You seem to think that there is a fixed amount of beer in the world apportioned to people on an equitable basis.
Well we live in a country that has a fiat currency. It is not a zero sum game. The amount of money available is infinite. You CREATE wealth by making, serving, inventing, selling and trading.
October 12, 2013
The main problem is it assumes the system is dead.
October 10, 2013
Spot on !
October 10, 2013
John,
You state that “the 50% tax rate led to a predictable decline in the numbers of rich staying and paying”. Do you have any figures to prove that large numbers of rich people left? As you well know, the 50% tax rate coincided with an economic downturn and it would be expected that tax revenues would decrease.
Perhaps we would be in a much better financial position if the richest paid the tax they should instead of finding way to avoid doing so. The extra billions would have a huge impact on reducing the national debt. With the country in a much better financial position and with the richest continuing to pay what they should, there would be a good opportunity for taxes to be significantly cut for the richest and for everyone else too. We need a true and fair override for measures taken for deliberate avoidance of tax and for no other reason, but of course the government won’t do it because it would upset their donors.
It is of great concern that the richest 1% are paying 29.8% of the total income tax. It shows that they are earning vastly more than everyone else. Our society is becoming more and more divided. We are heading towards a Latin American economy. The rich get richer but the economy doesn’t grow. As you often state we should be happy that the rich are rich, but only if it not at the expense of the majority.
Reply Yes, some rich people left – I think I gave the numbers in a previous post. We are heading towards the US where the top 1% earn more and pay more tax at their lower tax rates than ours.
October 10, 2013
Reply to reply.
You seem to be suggesting that you welcome a more unequal society with most of the wealth held by only a few. You never seem willing to mention large-scale tax avoidance and associated the loss of revenue that keeps taxation higher for everyone else.
October 10, 2013
I presume Credible that you never avoid tax and aim always to maximise your tax payments by never touching any of the legal ways open to you ?
For example paying money into a pension fund or investing in an ISA or claiming your personal allowance on income or capital gains each year.
The government sets the rules on tax.
The are open to anyone to take advantage of.
October 11, 2013
You are right. Companies and individuals avoid tax legally and it could be argued they’d be stupid not to.
The problem is large companies avoiding huge amounts and the government seemingly unwilling to make any changes to the law to reduce this happening.
A true and fair override for tax avoidance could be put in place.
October 11, 2013
Would you have any objections to a maximum limit being created for how much tax you can void each year? If not then why not.
October 12, 2013
It is for Government to set the law on tax and for companies and individuals to follow those laws.
I have yet to hear of any claims of law breaking.
If you feel you are not paying your fair share then send HRMC a voluntary donation Uni
October 10, 2013
Credible ( a misnomer if there ever was )
In ALL societies, under any system anywhere at any time there are disparities between top and bottom. Please show anywhere ever that has across the board wealth whatever that means.
You loose ALL credibility when you talk drivel about tax avoidance. It is a meaningless statement. You avoid tax all the time, put your own house in order.
Do you know that the average UK salary is £26500 that puts anyone who earns that amount in the top 7% of wealth in the world. So how much more tax would you like them to pay to make it more equal?
October 11, 2013
See response to Edward2
October 12, 2013
Credible
That DIDN’T answer my other two questions. I already know the answer to you tax avoidance non question
October 11, 2013
As there’s a proven link between high levels of income disparity, crime levels, and low academic achievement among the poor it’s clear that the larger the income disparity is the worse it becomes for society.
Given that people in the UK only pay taxes for the UK because there aren’t any worldwide taxes your analogy is deeply flawed.
October 12, 2013
Uanime5
You can prove anything you like with statistics.
However I’ve NEVER ever seen any evidence that the things you cite are caused by disparity. Please provide a link to the data
You cant because its obvious nonsense . If someone earns a salary of £10 million per year and I only earn £50k the disparity is huge but it doesn’t make me poor.
I’ll ask again, show me anywhere, under any system ever that has equality of income right across the board.
Failing that tell me how much is the right amount that EVERYONE should earn and what if any the allowable disparity is.
I guess you don’t know that a proportion of VAT goes abroad I guess you dont know that we spend billions of taxpayers money on overseas aid. Using your argument as YOU are in the top 7% wealthiest in the world you would be suggesting that a top rate of tax of say 70% should be levied on your wage to increase our overseas aid budget to narrow the disparity gap
October 12, 2013
libertarian
It may surprise you to hear that I don’t seek equality. I’m more than happy for some to be richer than others. I don’t want the rich to be fleeced for what they earn. I’m pretty well of myself.
However, I also don’t want to see the weakest and poorest in society (or worldwide) suffering because of the greed of the rich. I want to see people paid a decent amount of money for the work they do. I want to see the richest pay what they are supposed to. Maybe that is unachievable because of human nature. I hope not.
October 11, 2013
Credible – how are you going to get the drug or gambling addict to have equal wealth to those who work had and invest wisely? If you do then the latter will stop working or investing wisely and we will then all be in a real mess.
October 12, 2013
You seem to think that you know better than the labour markets what remuneration rates should apply to different skills. I doubt it. There is one abuse that needs to be corrected. It is that Directors of large corporations determine their own remuneration. A Statute ensuring that company shareholders set up a remuneration committee is overdue.
October 12, 2013
@Lindsay McDougall
“A Statute ensuring that company shareholders set up a remuneration committee is overdue.”
A large proportion of shareholders own shares through their pension funds and share ISAs.
These fund managers vote our shares at the AGMs which could be used to curtail the excessive pay awards you mention. The problem is that the fund managers and the fat cat directors tend to play golf together.
Get the picture?
The real question is why are the beneficial owners (i.e. us) not allowed to vote our own shares?
Could the answer be that the fat cats are an important source LibLabCon funding? If so, then the current system will not change unless our General Election voting habits change.
October 10, 2013
It is not just those who leave – people work less and make complex tax arrangement. Which diverts them and others from more productive activities.
October 11, 2013
Indeed LL
I meet many who run SME companies in the UK and nearly all are coasting, having decided not to expand their company or have actually scaled back their business to make their life easier and simpler.
They all seem tired of high rates of tax and NI, threats of employment tribunals, unwarranted tax or VAT investigations or Govt audit visits, problems complying with endless new red tape and EU regulations and the growing amount of time they are forced to spend on admin instead of concentrating on what they do best.
October 10, 2013
Setting a competitive tax rate is much too obvious for those in charge. They seem to think it is far better to complicate the tax system and bamboozle taxpayers with the second longest (if not longest) tax code in the world. It is no wonder that so much of UK business is owned by foreign interests. UK citizens have been are are continuing to be taxed out of property ownership. But once those in charge are totally in hock to those foreign interests once they own most of the earning asstes, what then? Then they really will have to set competitive tax rates or see stagnation and decline.
October 11, 2013
A complex tax system benefits the wealthy as it gives them more way to avoid paying their taxes.
October 12, 2013
So in favour of simplified tax code and low level flat tax system then Uni
Sense from you at last
October 12, 2013
Uanime5
“A complex tax system benefits the wealthy as it gives them more way to avoid paying their taxes.”
keep at it fella your gradually starting to see the light. Absolutely right if you want to raise revenue through tax you need to be open, clear and straight.
All taxes should be simplified made straightforward and contain no or very few loopholes …. Flat tax is the way to go
October 10, 2013
For Labuor, the “bash the rich mindset” is taking precedence over raising money again. I know several US bankers who have left London to come home to avoid losing more than half their pay to the government, and two hedge fund managers who cancelled setting up a business in London. (In Manhattan they will pay 41% before property taxes.)
The trouble is that the people at the top of Labour’s idea of “work” is based on their own careers where money tumbles in, you have near total job security, and it really doesn’t matter if you do anything useful as long as you get good headlines or avoid bad ones.
Their idea of a banker is a member of the Coalition Cabinet, whereas the majority of highly paid people are not British…
October 11, 2013
Unless these hedge fund managers were the only people in the world who could set up this business then someone less greedy will set up this business and pay the taxes.
October 12, 2013
By your ridiculous logic Uni, everytime any business relocated to another country a clone business would immediately open of exactly the same size and profitability in the vacated country.
If that were true world economic growth would be a triple figure each year.
You need to think these things through first.
October 10, 2013
As higher rates of tax return lower yields it is anti-social to let socialist dogma get in the way of the facts.
October 10, 2013
I think it’s immoral to tax above 40% but I think the government got this completely wrong. They should have made the case for cutting the rate a lot better and cut it from 50% to 40% or not at all. In tough economic times many people understandably think it’s wrong to give the rich a tax break. The problem is the British people cannot relate to Cameron and Osborne, they (rightly) perceive them as out of touch with ordinary people and therefore communication is ineffective. Cameron and Osborne should have realised that they would not be able to sell this policy to most people and should have waited till the next election to make their case to cut the rate. Cutting it by just 5% seems to me to be pointless.
October 10, 2013
As usual Mr Redwood is taking one figure, and completely ignoring all the context.
Are the rich playing games with the tax system, for example delaying income because they know the Tories will put the rate down in future, or pushing more into “capital” gains and less into income, or all the other tax avoidance games that the ruling elite in the UK (including MPs and their families) like to play? (Taxes are for the little people, remember.)
Also, by Mr Redwood’s logic, unless we allow the rich to expropriate a higher and higher percentage of the national income for themselves each and every year (leading to a higher and higher percentage of income tax being paid), then we are all supposed to be sad and ashamed.
October 10, 2013
Indeed
October 10, 2013
Well WAB whatever games you think they are playing, the fact remains they are paying more than they were.
Either you think this is a good thing or you do not and so must want those of us on lower incomes to pay more to make up the shortfall.
October 11, 2013
They are paying more because this year because the economy is improving and they stopped deferring their bonuses. Expect the 2014/15 tax revenues from this group to sharply fall.
October 12, 2013
Your prediction on tax revenues after the reduction in the top rate has been proved to be wrong in the past, just as this latest prediction will prove in time Uni.
Time will tell.
October 10, 2013
Wab
What utter drivel from start to finish.
2 questions What is national income? Where does it come from?
October 11, 2013
The national income is the combined incomes of everyone who works in a nation.
October 12, 2013
The national income is the combined incomes of everyone who works in a nation.
No its not
October 10, 2013
Slightly off topic I know but this has everything to do with the treatment of groups of different relative wealth by this government.
The announcement that investors who applied for more than the minimum number of Royal Mail shares will only receive £750 worth and those applying for more than £10,000 will receive nothing is as socialist an outcome as its possible to achieve in a capitalist share issue.
The fact that it was made by an ex-labour party Member, the current business secretary, is no coincidence.
How any Conservative PM could agree to this is simply staggering and is a perfect example of the kind of policy decision that has alienated your natural supporters.
Michael Fallon, the Conservative minister in charge of the floatations had publicly stated that all applicants would get a fair share in the distribution. this is looking pretty shabby now, isn’t it ?
How could Cameron possibly have found this acceptable ?
For the last three years this long suffering Conservative voter has reluctantly given Cameron the benefit of the doubt but as of today, no more.
The LibDem tail has been wagging the coalition dog for more than three years. They only fill 20% of the government benches yet seem to make the running on at least 50% of policy. Cameron is looking a lot more like a closet Liberal Han a Conservative.
I’m totally fed up with the LibDem version of “Fairness” meaning precisely the opposite for higher rate tax payers like me who have reached that position through sheer hard work and long hours. The loss of all child benefit for a couple on £50,000pa with a stay at home parent is a perfect example of a policy that is in no way “Fair”.
The fact that someone could afford to invest £10,001 in the Royal Mail flotation from savings that have already been taxed at 45% is no reason to deny them any shares at all.
Socialist dogma embraced and implemented by a Conservative Prime Minister ?
Who would had thought it……….
October 10, 2013
Why do we want more tax ?
It only becomes a benefits magnate to the rest of the world.
October 12, 2013
The way to tax the rich more is to cut the rate.
What does the Chancellor say when you tell him this?
Clearly he take no notice.
Reply He did listen and cut it from 50p to 45p. That is far as the Lib Dems would allow.