Over the last decade there has endless stories about how individuals and companies have slashed their tax bills through clever accounting practices. This is often because one part of the tax system undermines another part, an effect that economists refer to as “spillovers”. For example, if a tax haven has no corporation tax this can encourage businesses to artificially shift their profits to that country and away from a country with a higher tax rate.
Spillovers can happen between two countries, but can also happen within a domestic tax system. A case in point is that in the UK the income tax system is undermined because some people are able to turn their income into capital gains, which are taxed at a lower rate.
In order to ensure that companies and individuals are properly taxed it is vital to understand the impact of these spillovers in a structured way. That is why Tax Justice UK has joined up with Oxfam, ActionAid, Eurodad and Tax Justice Network to call for countries to carry out regular spillover assessments. Read the full declaration here.
This builds on the work carried out by ActionAid and by Richard Murphy and Andrew Baker on how to do these types of assessments.
An overwhelming majority of Brits believe those rich enough to live off their wealth should pay at least the same level of tax as others who go out to work for a living.
A YouGov poll commissioned by Tax Justice UK and Oxfam found that 69% of people felt people living off income from things like stocks and shares should pay the same level of tax as those who work for a living. A majority (52%) also agreed that the wealthy (net wealth over about £750,000) should be subject to a net wealth tax.
The survey demonstrates that far from being a revolutionary idea, the notion of wealth being taxed the same as income has substantial support across the political spectrum from Tories and Brexiteers to Labour and Liberal Democrat voters.
At the height of Margaret Thatcher’s reign in 1988 the same basic unfairness was ended when her Chancellor, Nigel Lawson, brought the taxation of capital gains into line with that of income from work.
A recent report by the Institute for Public Policy Research found that £90 billion could be raised over five years for public services by bringing capital gains and income tax into alignment.
This isn’t a policy that would hurt asset rich, but income poor, grannies. The IPPR found that 90% of capital gains currently taxable are received by people earning £100,000 a year. Getting rid of the low tax lifestyle enjoyed by these already wealthy people is doable without affecting pensioners.
This is now a no-brainer for any Government. Failing to back this policy wouldn't just be bad economics, it would go against the grain of public opinion too.
We need to put an end to wealthy hedge fund managers who pay a lower tax rate than their cleaners.
More details and a detailed breakdown of the poll findings are here.
All the figures, unless otherwise stated, are from YouGov Plc. Total sample size was 1,642 adults. Fieldwork was undertaken between 22nd - 23rd September 2019. The survey was carried out online. The figures have been weighted and are representative of all GB adults (aged 18+). The full results are available here.
For too long our politics and media has been dominated by a race-to-the-bottom ideology with tax depicted as “theft”.
Tax Justice UK exists to overturn this story.
The facts are simple: we are not raising enough money to pay for the teachers, nurses and public services voters want, whilst the tax that is raised is falling disproportionately on the poorest.
Tax Justice UK was born out of the wider international tax justice movement and we want to see everyone in the UK benefit from a fairer and more effective tax system.
The UK has high levels of poverty and inequality, and a majority of people feeling that the economy doesn’t work for them. Government spending is a key way of tackling these challenges. However, there are signs of strain including people sleeping rough a dysfunctional benefit system with many families reliant on foodbanks and a social care system that is failing the elderly and disabled.
A well functioning tax system should be a basic building block of our communities. But the current approach isn’t raising enough tax to fund vital services. We see no solution to the problems the UK faces that does not involve progressive tax reform. This means raising more tax in the first place and shifting the focus of tax from the poorest onto those better able to pay.
Today we’re publishing our three year strategy setting out how we plan to build public and political support for change. There is lots of policy analysis on what reform should look like by a range of academics, think tanks. What is sometimes missing is the political will and confidence to be bold about the need for change. The value we add is to take the ideas that are already out there and help build a movement to push for change.
Tax Justice UK will do three things:
During the period of this strategy we will focus on campaigning for greater taxes on wealth. Ideally the wealthy should be paying a higher share of their income in tax than the poor, but according to the Resolution Foundation this isn’t the case. There is a growing chorus of people on the left and right arguing that we need to tax wealth and capital better. Our report, The World we Want, set out how to do this.
This is an ambitious agenda. Despite the fact that UK politics is in turmoil, discussions about government spending and tax will still be central to public debate. Tax Justice UK will consistently demand that we have a tax system that works for everyone. If you’re interested in working with us, please get in touch - mail [at] taxjustice.uk.
Read our full strategy here.
Why should someone who goes out to work for a living pay a higher rate of tax than someone living off their wealth?
It’s a question that will puzzle many people in the wake of the Institute for Public Policy Research’s finding that a staggering £90 billion could be raised for public services if capital gains were taxed the same as income. This was a key recommendation from our The World we Want report. Capital gains are the profits from selling something, such as a business, property or a piece of art.
Wealthy people are more likely to get income from wealth and can end up paying less tax than they would if their income was from work. The easiest way is to be paid in company stock, rather than cash, cutting the tax rate for higher earners from 45% to 20%. This is how a hedge fund manager can pay a lower tax rate than their cleaner.
Even Thatcher thought income and capital should be taxed equally
At the height of Margaret Thatcher’s reign the same basic unfairness was ended.
In 1988, using words remarkably similar to the IPPR’s, the Chancellor of Exchequer, Nigel Lawson said: “There is little difference between income and capital gains and many people effectively have the option of choosing which to receive… it is by no means clear why one should be taxed more heavily than the other.”
To say we’ve come full circle since 1988 is something of an understatement. Wealthy people living a low tax lifestyle today benefit from even lower capital gains rates than they would have 30 years ago.
Clearly something has gone wrong, but it’s equally clear how politicians of all persuasions can put it right. We need to ensure that those who live off their wealth pay at least the same level of tax as those who live off their own work.
Tax Justice UK and Oxfam supported the IPPR on the report Just Tax: Reforming the taxation of wealth and work by Henry Parkes and Shreya Nanda which is available to download here
Read our short explainer on taxing income and wealth the same.
The salvo of cash promised in today’s spending review shows anti austerity arguments have won out. But these promises needed to be backed up by a fairer tax system.
Tax Justice UK’s Executive Director, Robert Palmer, said: “It’s clear the anti-austerity movement has won the debate that we need more public spending. However, we must go further to undo the cuts that have caused real hardship for millions.
“Nine years of cuts have helped entrench inequality in the UK. Until politicians address the low tax lifestyles open to the wealthy and commit to a fair tax system that invests in decent public services, “ending austerity” will be a meaningless headline for hungry Chancellors.”
With no Office for Budget Responsibility report to provide economic and fiscal context to today’s statement, it seems there is no-one around to check the Chancellor’s sums.
When it comes to tax Briton’s wealthy have ‘never had it so good’.
Recent research found that the unearned income of the most well off more than doubled in recent years while taxes on wealth are often lower than those on income from work. It is no wonder that wealth inequality is now estimated to be double that of income inequality.
Today’s report by Oxfam ahead of the G7 summit calls for an end to the low tax lifestyle enjoyed by the wealthy. It urges the creation of a new wealth tax and an end to the lower tax rates enjoyed by people who make a living from their property and assets. We really welcome putting this issue on the agenda.
Until recently income and capital gains taxes were charged at roughly the same rate. Prior to April 2008, capital gains were treated as the top slice of income, and the tax was charged at the same rates of tax as savings income (10%, 20% and 40%). Today income tax rates are 20, 40 and 45%, whereas the main Capital Gains Tax rates for individuals are 10 and 20%.
Bringing Capital Gains Tax back in line with tax on work was a key recommendation in IPPR’s Economic Justice Commission report, as well as the 2011 IFS Mirrlees report on reforming the tax system. It was last done by a Conservative government under Margaret Thatcher.
A decade on from the start of the financial crisis austerity has placed a huge strain on public services and a clear public majority has emerged that is in favour of increasing government spending and of accompanying tax rises.
As set our in our report ‘The World We Want’, Tax Justice UK believes unearned income should be treated the same as income tax and we are working with Oxfam and the Institute for Public Policy Research on proposals to bring them into alignment.
It is no longer justifiable for the wealthy to continue to benefit from a low tax lifestyle while the rest, toiling on stagnant wages, face the full income tax whack.
A review of inheritance tax released by the government today illustrates why the tax is ripe for reform. The Office of Tax Simplification highlighted how a number of features of inheritance tax, including some that benefit the very wealthy, are hard to justify.
Responding to the review, Robert Palmer, Executive Director of Tax Justice UK said: "Inheritance tax is broken. The public dislike it and the very wealthy can get away with not paying it. This review has pointed to a number of features of the tax which are hard to justify,
for example that no tax is due on shares on the AIM stock exchange. However, we need a more ambitious reform agenda to make inheritance tax work properly.”
Tax Justice UK’s recent report into inheritance tax reliefs found that a small number of the wealthiest families in the country are sharing up to £666 million a year in inheritance tax breaks on agricultural and business property. The Office of Tax Simplification pointed out that these reliefs will cost £5.85 billion over the next five years but due to its limited scope, the review stopped short of suggesting major reform.
Our report on inheritance tax 'In Stark Relief' recommends:
Latest figures show the UK is missing out on billions annually in lost tax revenue with amount rising for the second year in a row.
Statistics from HMRC estimate a shortfall of £35 billion in 2018/19 between the tax that should have been paid and the amount actually collected, up £2billion on the previous year and an increase of 17% since 2015/16.
Robert Palmer, Executive Director of Tax Justice UK, said: “The missing billions that HMRC claims make up the UK’s tax gap is equivalent to the entire budget for housing and the environment. While we’ll never collect all of this, more needs to be done.
“But there is a strong argument that the £35 billion gap is an understatement. Some argue that the actual figure could be as high as £120 billion as HMRC’s calculations miss out whole parts of the problem. To track down these missing billions HMRC needs to be properly resourced. The government must also close tax loopholes and take action against tax professionals who enable tax dodging.”
Analysis of tax returns recently published by Dr Arun Advani and the Social Market Foundation found HMRC had significantly reduced the number of spot checks it carries out. Dr Advani’s research also found that targeted spot checks are effective at finding instances of underreporting and influence taxpayer behaviour in subsequent years.
Politicians are giving some of the wealthiest families in the UK generous tax breaks, money that cuts into the cash that could be spent on doctors or teachers.
Tax Justice UK’s new research finds the government is handing out up to £666 million a year in inheritance tax reliefs on land and business property to families who are already well off.
Inheritance tax is unpopular, but most people don’t own enough to pay it since every couple can pass on up to £950,000 of their wealth tax free.
Our research shows that if you're very well off there are additional ways of cutting your bill.
This graph taken from the Office for Tax Simplification gives a sense of how the effective inheritance tax rate goes down for the really wealthy.
Part of the reason the rate drops is the tax reliefs that are available. Agricultural property relief reduces inheritance tax at a rate of up to 100%, while business property relief reduces tax by between 50 and 100%.
The idea is to make it easier to keep farms and businesses in the family after death. On paper farmers and family businesses often look wealthy - they own lots of land or buildings - but might have limited amounts of cash to pay any inheritance tax. But these reliefs are expensive - costing a billion pounds a year.
So who’s actually benefiting from this tax break? Tax Justice UK asked HMRC and what we found is deeply worrying. Up to £666m annually is going to already wealthy families. In 2015/16 - the latest years we have figures for - over 71% of the tax break went to families with farm and business property worth over £1m. At the very top, 51 well off families with business property assets shared roughly £6.4m each in tax breaks.
For more detail read our report: ‘In Stark Relief: how inheritance tax breaks favour the well off’, which you can find here.
Beyond the fact that these reliefs give an unfair government subsidy to the already wealthy, this is driving up the price of farmland. Estate agents are marketing agricultural property as a tax efficient place to park money. Big money is buying up land, hoovering up farming subsidies and on top of that getting a massive tax break. This has a big impact for ordinary farmers who are struggling to buy farmland. Recent research from Guy Shrubsole has shown how deeply unequal land ownership is.
At the very least the government should cap the amount of relief that can be given out and a range of think tanks have suggested further reforms. Any reform should be part of a broader look at the subsidies and tax breaks that landowners get.
When it comes down to it politicians have to make choices about priorities. Choosing to give tax breaks to wealthy families, comes at the expense of longer wait times to see a GP or larger class sizes and less money to invest in the future of the country.
The UK’s wealth is spread deeply unevenly, with knock on effects on people’s life chances. Tax Justice UK’s vision is for a society where there is sufficient investment in public services to pay for the roads, schools and public services we all use, and deserve. We believe this vision is shared by the majority of people in the UK and that delivery of such a vision will require boldness and a new approach. It will mean taxing many of us more and taxing the wealthiest the most.
This new report puts into stark relief the unfairness at the root of the UK’s current system of inheritance tax reliefs and sets out steps the government could take to reform it.
Read the report here.
In his Spring Statement earlier today the Chancellor, Philip Hammond, confirmed that the country is sitting on higher than expected public finances, and acknowledged that this opened the door for more spending.
“Today’s announcement sets up the Chancellor to get his cheque book out and give a cash boost to government spending,” said Robert Palmer, Executive Director of Tax Justice UK. “Whatever happens with Brexit, public services are creaking and the public wants to see more spending.”
“The Prime Minister promised to end austerity: we now need to see this happen. Street homelessness is through the roof, prison violence at a record high. With the demands of an ageing population and rising numbers of children at risk placing ever higher demands on local councils, the government must draw a line under austerity. We want to see decent public services backed in part through fair taxes.”
The Chancellor is set to announce how much money government departments will get in a spending review due over the summer. If there is an orderly Brexit, the Chancellor has an extra £26.6bn to potentially spend from 2020-21 due to better than expected borrowing and tax figures. In the case of no deal, more spending is also likely, but this time to prop up key sectors of the economy.
Tax Justice UK Executive Director, Robert Palmer, is available to comment on the Spring Statement. To arrange an interview, contact: Paul Hebden, Head of Communications, Tax Justice UK: email@example.com / 07413 729 505.