Every so often we put out a story that really explodes in the media.
This happened to us last week when over 900 newspapers and websites picked up a comment our executive director Robert Palmer made about the prime minister’s tax return.
Last year Rishi Sunak brought in £2.2 million in earnings. But he only paid 23% tax on it. This is the same tax rate as the average teacher. This situation is grossly unfair.
The story was picked up by, to name just a few: Sky News, The Express, The Mirror, and The Guardian. As well as nearly 900 local newspapers. Robert was also on LBC with Matthew Wright.
Why was there so much interest? The story was a spark, igniting a growing suspicion held by many: that there’s no cost of living crisis for the super rich. And that the very wealthy are not being fairly taxed.
How is his tax rate so low?
How does our tax system allow a multimillionaire to pay such a low rate of tax? In this case it comes down to capital gains tax.
Most of Sunak’s earnings in this period (£1.8m) came from financial investments. When you sell shares you pay capital gains tax on any profits you’ve made. It’s likely that the Prime Minister paid just 20% tax on these gains.
This rate is a lot lower than if he had earned £1.8 million through working. In this situation, Sunak would pay more like 45% in income tax alone.
20% vs 45%. That’s a big difference. It’s the key to understanding one of the ways in which very rich people pay much lower rates of tax than they should. This is deeply unfair.
We’re campaigning to ensure that income from wealth is taxed at the same level as income from work. So if your income is £2.2 million a year from whatever source, you pay the same rate.
Our research shows that in doing this we could raise up to £15 billion a year extra.
The NHS and other public services are facing existential crises.
It’s clear to any patient trying to get a GP’s appointment, stuck on a waiting list for years, or trying to find a dentist, that the system is not working as it should.
These services have been cut to the bone by austerity, underfunded for over a decade.
The quality of our NHS and public services is related to the level of tax we pay. So now is clearly not the time to be cutting taxes (as is being mooted by the Chancellor and the right-wing press). Even the International Monetary Fund agrees that tax cuts now are a bad idea.
For the life support our NHS and public services need, the government should pursue fair ways to raise tax revenues, not lower them.
Taxing very wealthy companies is one of the fairest ways we can do this.
It was disappointing to learn last week that Labour have ruled out any increases to corporation tax for five years, if they win the next election.
Corporation tax is currently 25%, the lowest in the G7. Meanwhile businesses benefit from numerous tax breaks and loopholes with very little government oversight, as I wrote about last week.
Just last year the Chancellor announced the biggest tax cut for large businesses in history - worth £50 billion over five years.
Plenty of companies have recorded soaring profits in recent years, while the rest of us continue to face unaffordable bills and a deteriorating social security net.
Tax is about political choices
Raising corporation tax, at least in line with comparable countries, is a sensible and fair way to raise more money for our public services.
Our executive director Robert Palmer wrote to The Times pointing this out, arguing it was out of touch for shadow chancellor Rachel Reeves to rule out raising it. The Mirror and The Guardian also picked up what I said.
Tax is about political choices. Who should pay for rescuing our sinking public services, for example? Big companies and their shareholders, or the rest of us?
There’s a risk that Rachel Reeves is backing a future Labour government into a corner. Ruling out various sensible and credible funding streams will make it harder to invest to save our crumbling schools and hospitals.
Whichever party wins the next election has a massive job on their hands to breathe life back into Britain and its public services, after 14 years of neglect and underfunding from Conservative governments.
The UK spends hundreds of billions of pounds a year on tax reliefs. But a new report suggests that the government doesn’t have a clear idea of whether these tax reliefs are actually achieving their aims – or are just a costly bung to favoured industries.
The report from the National Audit Office highlights that tax reliefs cost £204 billion every year – that’s £204 billion that otherwise would have been collected in tax, if the tax relief didn’t exist.
Tax reliefs are used by the government to try to encourage certain activities or types of investments.
Businesses lobby for special treatment and it’s often unclear whether tax reliefs provide value for money. This is why it’s really important to know whether tax reliefs are working as intended or not.
But there’s a problem. HMRC is given a miniscule budget of just £600,000 a year to run assessments to measure whether these tax reliefs are achieving their objectives.
These assessments are also crucial to gauge whether tax reliefs are open to fraud and error, and potentially being abused to evade tax.
That’s just £600,000 to assess and monitor £204 billion of tax reliefs. It’s a real jaw-dropper.
And the result? HMRC have assessed only a fraction of tax reliefs over the past nine years.
A glimpse into the unknown
One of the tax reliefs they did assess – research and development relief for smaller businesses – was being claimed fraudulently or in error a quarter of the time. That’s over £1 billion a year that was claimed wrongly.
The bottomline: a large number of tax breaks – worth hundreds of billions of pounds a year – are being left open to abuse, with little or no scrutiny by the government.
It’s a shocking revelation, and yet another piece of evidence that HMRC is woefully under-resourced to properly police and scrutinise our tax system. We reported in last week’s newsletter on the same issue.
It shouldn’t be this way
Our public services are desperate for more investment.
If the government had a better idea of which tax reliefs were working, and which tax reliefs could be scrapped, we could free up billions of pounds for investment.
At Tax Justice UK we’ve identified just 5 tax breaks that could be closed, which would raise £7 billion a year. This is money that could be pumped straight into our struggling hospitals, schools and communities.
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