A small club of ultra wealthy Londoners scooped a tax break equal to every northerner in the country combined according to figures unearthed by Tax Justice UK.
The finding emerged ahead of next week’s budget when the Chancellor is rumoured to be considering equalising capital gains - the profits made when selling shares, investment property and other assets - with income tax. The policy could raise £14bn a year according to government estimates.
Our research shows that by focusing tax rises on wealthy taxpayers in the south, such a move would support the government’s levelling up agenda.
Based on HMRC statistics, we found that people who live in London and the southeast of England receive half of all capital gains, despite only making up a quarter of the population. In contrast, people in the north of England and the midlands receive just a quarter of capital gains despite making up 40% of the UK’s population.
For the very highest earners, the figures are even more skewed. The 1,586 individuals in London with capital gains of over £1.6 million a year take home more in gains (£9bn) than all individuals in the north of England (£8bn of gains). Gains of £1.6 million a year million puts you in the top 0.01% of earners.
Recent research from LSE and the University of Warwick found that high earners can use capital gains to slash their total tax bills. For example, the average tax rate of someone netting £10m is just 21%. Capital gains are also highly concentrated, with 62 percent of capital gains going to just 9,000 people with gains of over £1m.
A review from the Office of Tax Simplification commissioned by the Chancellor suggested taxing capital gains at the same level as income tax and removing loopholes such as wiping out gains on death. Rumours in advance of the March budget suggest that Rishi Sunak is seriously looking at increasing capital gains tax.
Our breakdown of how CGT is distributed regionally can be viewed here. It is based on publicly available HMRC statistics and a freedom of information response to Tax Justice UK.
We would like to thank Dr Andy Summers (LSE) and Dr Arun Advani (University of Warwick) for their support with this research. All errors remain our own.
This article by our Head of Advocacy, Tom Peters, first appeared in Labourlist
The government has received up to 40 bids for ‘free port’ status from across the UK, including several from Labour authorities. The ten successful bidders will be offered a mix of deregulation, cuts to tariffs, land and business taxes and employee National Insurance by the Chancellor Rishi Sunak.
After a decade of unprecedented budget cuts, local Labour leaders may feel tempted by the promise that jobs and investment will follow these tax breaks. But they should be cautious. Free port status is a Faustian pact, signing away sustainable local development for a reheated Thatcherite race to the bottom.
The Chancellor’s promise that free ports will deliver 86,000 new jobs doesn’t withstand scrutiny. There is little evidence that similar areas in other countries have created new activity. The Organisation for Economic Co-operation and Development believes most jobs are simply relocated from other places, as businesses move to benefit from the tax cut. The reduced employer responsibilities are also of concern; the TUC has labelled free ports a “Trojan horse” that could water down workers’ rights.
The projected costs of tax cuts in Teeside alone could be £400m over 25 years, but the UK Trade Policy Observatory believes the economic benefits to the UK will be “negligible at best“. Perhaps that’s why David Cameron scrapped eight free ports in the UK back in 2012, replacing them with ‘enterprise zones’. Even the zones delivered only a quarter of the promised jobs and, according to the Centre for Cities, these were overwhelmingly low-skilled and poorly paid.
The dubious benefits come with high risks that ‘sleaze ports’ will become entangled with money laundering and criminality. The OECD found “clear evidence that free ports are being used by criminals to traffic fake goods”. The EU parliament’s study of a similar model in Luxembourg found it to be “high risk in relation to money laundering”. RUSI has called on the UK government to “assess existing criminal risks in the geographical locations where free ports will be established”.
The core justification for introducing low tax zones is weak. There’s limited evidence that tax levels are holding back economic growth. At 19%, the UK corporate tax rate is one of the lowest in the developed world. The Treasury recently conceded that the last decade of business tax cuts has done little to stimulate inward investment. Meanwhile, the free port model risks spilling into the rest of the economy, stoking competition from other areas for similar tax cut treatment. This is not a path to the healthy and inclusive economy that Labour politicians should wish to see.
Bridget Phillipson, the Shadow Chief Secretary to the Treasury, has rightly written that free ports are no “silver bullet” for the economy. But Labour should go further: at both a local and national level, leaders should refuse to introduce mini tax-havens on their doorsteps.
There are alternatives. The government should keep its promises to develop an industrial strategy, invest in infrastructure and support a green transition. The sums spent in tax cuts could be repurposed as direct capital investment in port infrastructure. The government-funded ORE Catapult Centre believes that ports are essential building blocks for the expansion of offshore wind. Additional investment would develop stronger domestic supply chains for clean energy, driving our ambitions for net-zero carbon and creating skilled, green jobs locally.
Free ports offer the promise of a buccaneering post-Brexit Britain, trading its way to prosperity. But in reality they are glorified business parks, offering bad jobs and undermining our tax system. Believing in the false promises of free ports will leave us all worse off.
This article by our Executive Director, Robert Palmer, first appeared in Tribune magazine.
Last year saw middle class Brits squirrelling away cash at record levels with savings piling up in the bank accounts of the so-called “sourdough savers.”
If like me, you have spent the majority of the pandemic working from home, not commuting, unable to go out and not travelling, then it’s likely that the state of your household finances are a rare chink of light in hard times. For many, 2020 was a bumper year financially, with the Bank of England stating that extra savings were concentrated in the wealthiest households.
For others the financial impact of covid has been bleak.
Despite various government support schemes, for example furlough, nine million people have had to take a loan out because of the pandemic. The Resolution Foundation reported serious financial stress, with 54% of families on the lowest incomes being forced to borrow to pay for food and housing.
This deep division is not new. Last week it emerged that the UK was already at a decade long high in terms of income inequality.
The incomes of the poorest fifth of households were in freefall before covid, down 4.8% since 2010. For “just about managing families” on average earnings, wages grew by an average of just 0.8% between 2011 and Spring 2020.
Before the pandemic a household on the average wage would have had to save every penny, for 96 years, to reach the wealth of the top 10%. The economic fallout from the pandemic will doubtless have delivered a hammer blow to those, admittedly abstract, prospects.
Those who entered the crisis struggling have been hit the hardest, while the bank balances of many wealthier families have done well.
An economy that fails to guarantee good health and prosperity for the most vulnerable - whether in the midst of a global pandemic or not - is an economy that is fast running out of road.
The big political question this year will be how to recover from the pandemic in a way that’s fair and sustainable. The Shadow Chancellor of the Exchequer, Anneliese Dodds, spoke recently of her fear that a form of austerity and tax rises will be imposed in the next 12 to 18 months to give the government space to offer fresh tax cuts before the next general election.
With tax rises on the cards, politicians are already asking “who will pay?”
For me, it’s clear that the answer has to be profitable companies and those with substantial wealth. Our tax system currently focuses too much on taxing consumer spending and income from work.
There’s growing economic consensus that we need to do a much better job of ending the unfair advantages for the wealthiest in society. These include reforming capital gains tax so that income from wealth is taxed at the same as income from work. This would end the spectacle of hedge fund managers getting away with paying lower tax rates than nurses.
Other ideas include reducing the cushy pensions tax relief that higher earners get compared to lower earners, reforming our wildly dated and unfair council tax system and raising corporation tax.
All these ideas were backed by a group of 18 organisations, including Oxfam, Jubilee Debt Campaign and the Institute for Public Policy Research, who joined us last summer in calling for progressive tax reform post-covid.
Another idea floated toward the end of last year was for a one off wealth tax for millionaire couples. It’s unlikely this government would introduce such a policy, but the fact that think tanks, academics and lawyers agreed such an idea is technically possible has made a lot of people sit up and think.
All these well thought out proposals show that there are options for the government other than slapping a VAT or income tax hike on people who are already struggling to get by.
Increased taxes on wealth are a no brainer electorally too, especially in the so-called “red wall,” where communities are crying out for better public services and investment after years of economic loss.
Tax Justice UK’s own polling and focus groups from last year found significant support for taxes on wealth, with 74% of people wanting to see wealth taxed more, including 64% of Conservative voters and 88% of Labour voters.
We found strong Conservative voter support for increases to capital gains tax and corporation tax. Conservative support for higher corporation tax actually leaped from 61% to 74% between our March and June polls last year.
All of this should make it a political no brainer to close the loopholes that allow wealth to be under-taxed. Those with the broadest shoulders must pay their fair share.
The pandemic has put into stark relief our broken economy. But inequality is entrenched as a consequence of long term political and economic decisions.
If our achievement in turning around this pandemic teaches us anything it is surely that we need to raise the bar on what is achievable in other areas too. We cannot continue with an economic system that fails so many people. Tax justice must be at the heart of any reform package.