More than 70% of high earners paid 50% tax rate

Stack  of pound coins

When Labour was in power, it was a nightmare trying to obtain reliable data on the real tax burden for those on very high incomes (there's a big chunk of the last book wot I wrote about whether the super-rich pay their fair share: the word "blood" and "stone" come to mind).

So I was fascinated and somewhat amused that a coalition government of Tories and Lib Dems is volunteering this information.

Here's the punchline in the comedy of politics.

Labour had persuaded itself that the super-rich were making a big indirect contribution to the health of the British economy by employing lots of people at their hedge funds, private equity firms and similar new-generation financial businesses - which many would see as the antithesis of what Labour would normally believe.

So a Labour-controlled Treasury was not desperately keen to shout about how these phenomenally well-heeled people exploited tax loopholes to massively cut the rate of tax they pay on their income: in many cases their tax rates were below what those on low and middling incomes typically pay.

Meanwhile a Tory Chancellor, George Osborne, is convinced that those on the highest incomes are not making a proper contribution to the reduction of the government's excessive deficit - and so he wants to limit their ability to avoid tax, including through his controversial plan to limit how much they can cut their tax bill by making big contributions to charity.

So a government led by Conservatives, normally regarded as the pals of the rich, is conducting a campaign to highlight how many high earners are refusing to participate in the supposedly collective fight to restore the public finances and the health of the economy.

Here is what the Treasury says in its statement today: "People earning £20,000 pay a higher rate of tax than some people earning millions...The Government is shining a light on the way the current tax rules work and demonstrating a clear commitment to creating a fairer system".

Crikey, ain't politics weird?

What do the Treasury's stats show?

Well, of the 10,000 people who in 2010/11 declared an income in the range £1m to £5m, around 1,000 of these paid a tax rate of less than 30%, well below the top rate of 50%, including 200 people paying a tax rate of between 10% and 20% and 300 people paying less than 10%. That is a lot of tax lost to the Exchequer.

For those earning between £5m and £10m, 44 people paid less than 30% - including 16 people on these massive incomes paying a tax rate below 10%.

And of the 200 people earning more than £10m a year, 16 paid between 20% and 30%, six paid between 10% and 20%, and 12 high earners paid a tax rate below 10%.

So if we take a notional example of individuals declaring income of £15m in 2010/11, if they succeeded in reducing their income-tax rate to less than 10% by using tax-avoidance measures - including, for example, by making substantial contributions to charity - that would have resulted in a £6m reduction in receipts for the Treasury for each one of them.

You can see why in our straitened times, Mr Osborne would quite like to have that £6m.

But here is the funny thing about the data disclosed today by the Treasury. As you know, George Osborne is scrapping the 50% top rate of tax, and replacing it with a 45% rate, because he was informed by Her Majesty's Revenue and Customs that there was massive avoidance of the new top rate, such that the yield from the higher rate was trivial.

However today's data shows that more than 73% of those earning over £250,000 were paying an average tax rate above 40% in 2010/11. And even among those earning between £5m and £10m and those earning over £10m, the proportion paying more than 40% in tax was 81% and 72% respectively.

All of which implies that many tens of thousands of people were (and are) paying the 50% tax rate, and were unable to dodge it. To state the bloomin' obvious, all of those people were given a very lovely tax cut in the budget - which will doubtless add fuel to Labour's campaign that the budget rewarded the rich at the expense of the rest.

Now it is possible, I suppose, that vast numbers of people artificially reduced their income below the threshold of £150,000 (by deferring dividends for example) to avoid the 50% rate. That is certainly the implication of HMRC's study of what was happening.

But even so it is striking quite how many people paid tax greater than 40% - a proportion 10 times greater than those who succeeded in paying almost no tax. Or to put it another way, perhaps the highest earners have had a slightly unfair press, because the majority of them seem to have been paying their proper share.

Robert Peston Article written by Robert Peston Robert Peston Economics editor

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  • rate this

    Comment number 23.

    Taxation is a joke in this country. Every economic transaction is taxed, we probably spend more on collecting taxes than the armed forces cost us. Taking tax away from charities receiving donations from rich people just so the politicians can have some headlines spun to say they are taxing rich people is farcical. This government has lost it.

  • rate this

    Comment number 22.

    An interesting question is exactly what "who in 2010/11 declared an income....." means. Would these figures include all those non doms, tax exiles, being paid though off shore ompanies etc? If not they're fairly meaningless statistics.

  • rate this

    Comment number 21.

    Is it time for one tax band - 25% across the board - those earning more money will still pay more tax, ie 25% of £1m is still more than 25% of £40,000. Life isn't fair - some people are simply able to demand higher income because of their extraordinary ability - get over it!

  • rate this

    Comment number 20.

    Second half, letter count idea pathetic.
    Balance is needed. Gazzillionaires ruling the lives of millions of people, is not what is needed in any century let alone the 21st.
    Come on lets have some sensible, HONEST, economic policies, for the good of all citizens !

  • rate this

    Comment number 19.

    Are you really that naive?

  • rate this

    Comment number 18.

    be carefull about the rich bashing cos they will leave to other countries and the exchequer looses even more. The so called poor always find the extra £s to play the lottery at least once a week if not twice, is it not 2 b'com rich, without actualy working a tad hard to earn that kind of money, or creating jobs? 2be rich is a good thing

  • rate this

    Comment number 17.

    My experience of tax avoidance in the City was that use of the 'non-dom' loophole was widespread, but this wasn't open to employees who were UK nationals; they could use arms-length offshore trusts, but as soon as the money was touched or bought back into the UK it became liable for tax, so this was generally more trouble than it was worth. Most UK nationals simply paid up.

  • rate this

    Comment number 16.

    4 ADS the reference is Morecambe and Wise not Yoof speak

    9 MS the government has to find a load of money at the moment because the financial services industry drove the economy over a cliff.

    In European terms we pay low tax - sadly Whitehall and local government has been so captured by the big corporations all the money goes straight into their pockets - they CERTAINLY don't want smaller govt.

  • rate this

    Comment number 15.

    Now this IS interesting Robert notwithstanding it should be on Steffie's or Nick's Blog.

    Problem with leaking is that it reveals more than perhaps intended! So, the reason given by HM'sT & GO for scrapping 50% rate - it only raises £100 to £700m - was incorrect?

  • rate this

    Comment number 14.

    The Gov't should stop listening to Thatcherite/Reaganite American Investment Bankers and use some common sense.
    Sympathy for extremely rich people (incomes over £1million a year, just imagine it) is misplaced, and not conducive to an effective economy.

  • rate this

    Comment number 13.

    These statistics would have been devastating had they been available before the budget because they show even without combating tax avoiding tricks that a 50% rate would have generated a good return. Perhaps now encouraged Labour should think about a 60% rate for incomes above £500,000. Such is the power of the wealthy lobbyists.

  • rate this

    Comment number 12.

    Just now
    With all this talk about fairness, it is a pity nobody seriously asks what is "fair" about taking 40% of income (+ NI) from ANYONE?

    Probably because you are paid far too much in the first place? . . .

  • rate this

    Comment number 11.

    The tax system in this country is ridiculous.
    It is so complicated and convoluted that even the so called experts only have a limited grasp of its intricacies.
    It needs to be radically reviewed not just tinkered with as is the case now.
    Norway has a transparent tax system which works well.
    People who avoid paying their fair whack should be held up to public disgrace.
    You can't take it with you.

  • rate this

    Comment number 10.

    Isn't it becoming obvious that HRMC is going the same way as other Government and civil service bodies in that they seem incapable of operationally managing their brief, mainly down to outsourcing much of their work to the likes of KPMG etc. Has it become government policy to let the senior management of such institutions fall to such a low level in order to privatise them fully, as with BR etc.

  • rate this

    Comment number 9.

    With all this talk about fairness, it is a pity nobody seriously asks what is "fair" about taking 40% of income (+ NI) from ANYONE?

    Possibly one of the systemic problems with this country and other high-spending welfare states, is that most people now take for granted a default setting in which it is normal for the state to take so much wealth from the productive economy. It's madness.

  • rate this

    Comment number 8.

    Just shows that seemingly while the vast majority of well heeled are willing to pay their share of higher taxes, those who want to avoid paying still have the means to do so. I suspect that those well heeled who are employees, however impressive their job descriptions will find it more difficult to avoid than those, who are of a more entrepreneurial bent.

  • rate this

    Comment number 7.

    'Never trust statistics unless you fiddled the figures yourself' said Churchill....I agree!

  • rate this

    Comment number 6.

    Careful now, your article ends with the implication that we should be grateful for the 70% who pay top rate tax! No its their civic duty, like the rest of us to pay the tax we owe. Please spend your efforts challenging those near 30% of people who are avoiding their tax commitment.

  • rate this

    Comment number 5.

    Osbourn/HMRC used data on the 50% band from its 1st year - when taking income early saw it was taxed at 40%. By abolishing it, now, delaying income taxes it ar 45%. No true figures will ever be available. If a rich person gives most of their income to Charity, why should they pay tax on money THEY NO LONGER HAVE! Anyway, the low paid on Tax Credits have a marginal tax rate of over 70%!

  • rate this

    Comment number 4.

    "the last book wot I wrote..."

    Come on Mr Peston you are not in the playground with your bros!


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