George Osborne is shocked, shocked that some very rich people are reducing their tax bill by using devilishly clever tax loopholes. Only it turns out that the main ‘loopholes’ are: claiming relief for business losses; deducting interest on business loans from taxable profits; and charitable donations.
Now in fact these are not devilish new loopholes but longstanding, well-known, legitimate tax deductions, all existing for sound economic, business and moral reasons and approved by Parliament. It would not take a particularly clever accountant to suddenly ‘spot’ them.
But without getting into all that, what I find most bizarre is this widely-accepted narrative that ‘the rich’, as a class, are not paying their fair share of taxes, while the ordinary working man is being squeezed.
Let’s get some reality back into this. Here are some official HMRC figures, pertinent ones being:
- The top 1% of earners have 12.6% of total national income, but pay 27.7% of total income tax to HMRC
- The bottom 50% of earners have 23.4% of total income but only contribute 10.3% of tax.
- Perhaps most extraordinarily, the top 5% of earners pay 47% of the total tax
Which is not to say that some egregious multi-millionaires aren’t flagrantly abusing the spirit of the law to wriggle out of paying a ‘fair’ amount of tax (whatever that is). But where there is outright fraud (eg. charities that aren’t really charities) then laws do already exist, and where they don’t exist the purpose of the forthcoming General Anti-Avoidance Rule is to tackle it (the GAAR probably won’t work, mind, and will possibly have terrible unintended consequences, but that’s yet another story).
But this underlying insinuation that ‘the rich’ as a class aren’t contributing to the state doesn’t stand up to a moment’s scrutiny. It’s worth repeating: the top 5% of earners pay 47% of the total income tax to the state. So our welfare state and everything it provides for us is already utterly dependent on those wicked rich. And so are charities, tax-deductible donations to which the Government wants, inexplicably, to cap.
So why do we have this sudden outburst of class resentment? Mostly it’s the usual politics of envy from the usual suspects on the old left, but it has also now been deliberately stoked by Osborne, whose ‘shocked, shocked’ statement is a transparent bit of politicking under accusations of being ‘the party of the rich’ after cutting the 50% top tax rate in the Budget.
My respect for Osborne has diminished with this, but if you really want to get angry with a Chancellor for squeezing the working man, then direct your ire at Gordon ‘Prudence’ Brown, who not only spent all of the tax take from the rich but borrowed even more, much, much more, during boom times, running up a debt that we and our children will have to bear for decades.