Paying their fair share

In 1978-9, before the election of Margaret Thatcher, the top rate of UK income tax was 83%, and any income from investment was called ‘unearned income’ and had a 15% surcharge added, giving a top tax rate of 98%.

At that time, the top 1% of taxpayers contributed 11% of income tax revenue, and the top 10% contributed 35%.

Today the top rate of income tax is 45%. Now, using the most recently published data for the 2023-2024 tax year, the top 1% of taxpayers paid 28-29% of all income tax, and the top 10% of taxpayers paid 59-60% of all income tax.

So, with income tax down from 83% (or 98% on investment income) to 45%, the top 1% have seen their share of total tax go up to just under three times what it was. And the top 10% of taxpayers have seen their share rise from just over a third of the total to just under two-thirds of all income tax.

When people talk of having rich pay their fair share, I imagine very few of them have any idea of what share ‘the rich’ are already paying. If the top 10% paying 60% of the total is not a fair share, perhaps we should ask them what figure they would consider fair?

Arthur Laffer must indeed be smiling (if not laffing) to see lower tax rates bring in not only more revenue, but having a much higher share of it paid by the well-off.

We don’t need to theorize that higher tax rates will reduce tax revenue. It happened in Scotland when the Scottish Assembly tried it. Raising the top rate to 48% produced a net loss of £22m for that band in its first year.

If tax rates were increased for the wealthy in England, it is almost certain that net revenue would go down, as would the share paid by the richest. In gesture politics and virtue signalling, however, the predicted and the perceived matter more than the performance. “Accountants only slow things down, figures get in the way,” as Eva Peron sings in ‘Evita.’

I doubt they’ll get in the way of this government.

Madsen Pirie