Sunday 4 October 2015

Sunday, October 04, 2015 Posted by Jake No comments Labels: , , , , , , , , , , ,
Posted by Jake on Sunday, October 04, 2015 with No comments | Labels: , , , , , , , , , , ,

Writing in the Daily Telegraph in 2013, Boris Johnson said in a piece titled "We should be humbly thanking the super-rich, not bashing them":
"Now, the top 0.1 per cent – about 29,000 people – pay an amazing 14.1 per cent of all taxes."

Boris’ figure seems to come from a Freedom of Information (FOI) response from HMRC [which we have looked for but can’t find it where it is supposed to be published – we would be grateful for a link to this]. However Boris was mistaken. The Daily Mail, clarified this as 14.1 percent of Income Tax, not of All Tax. Boris' mistake is often heard in the media, with people claiming and some actually believing the top 1% pay for most of public spending.

So, what difference does "Income" versus "All" make? Actually, a lot.

HMRC doesn't publish the top 0.1% tax normally, except in FOI responses. However HMRC estimates for 2015/16 show the top 1% do pay over a quarter, about 27.5%, of Income Tax. HMRC figures also show Income Tax for that year made up 31.7% of "All Taxes". 

Therefore the top 1%'s income tax makes up just 8.7% of "All Taxes" (31.7% x 27.5% = 8.7%).

It has been a common tactic to use the enormous share of Income Tax the very rich pay to throw a smokescreen of eye-lowering "don't look too hard" gratitude over the enormous amount of income they receive. And yet it is true, the top 1% do pay a share of Income Tax disproportionate to their population. 

The reason for this is low pay in Britain has meant most people couldn't afford to pay a greater share of Income Tax even if they wanted to. Far from having spare cash to contribute in Income Tax, a report by the Resolution Foundation think tank in 2012, "Gaining from growth: The final report of the Commission on Living Standards" shows the bottom 50% actually have to borrow money to cover their living costs. The "Savings Ratio" in the graph below shows what percentage of income each group can save. A negative Savings Ratio indicates they are borrowing.

In a separate press release the Resolution Foundation stated by the 2020 General Election the number of workers on the legal minimum wage will have doubled to more than 10% of the working population. It's due to free-market set wages falling behind the government set minimum wage (laughably renamed by George Osborne as the National Living Wage). If you look at specific sub groups of workers, the proportion on minimum wage in 2020 will be even higher than 10%:
  • 15% of female employees
  • 25% in micro businesses (businesses with fewer than 10 employees, who had over 8 million employees in 2014)
  • 40% in the hospitality sector

It is said by some that burgeoning top pay does not hold down bottom pay. That may be true if the question is simply diversion of bottom pay into top pay packets. However top pay is usually justified by profits. According to Gavyn Davies, (hedge fund manager, former Goldman Sachs partner, and former chairman of the BBC) two thirds of corporate profits have come from holding wages down:

"[If the] decline in the wage share had not occurred, and everything else had (implausibly) stayed the same, then gross profits in the developed economies would have been about one-third lower than they are today and net profits (after depreciation) would have been about two-thirds lower."

So while the 1% may not be directly siphoning off the wages of the 99%, they use holding those wages down to boost their profits and boost their resulting rewards. We can see an example of how executive pay has ramped up from a report, "How to make high pay fairer", published in July 2014 by the High Pay Centre think tank. The report stated:

"Typical annual pay for a FTSE 100 CEO has risen from around £100,000-£200,000 in the early 1980s to just over £1 million at the turn of the 21st century to £4.3 million in 2012. This represented a leap from around 20 times the pay of the average UK worker in the 1980s to 60 times in 1998, to 160 times in 2012 (the most recent year for which full figures are available)."

Creating a growing economic distance between the few and the many creates a deeper problem. As those at the top, who direct the government of Britain, no longer need public services they don’t feel the pain when those  services are cut. Those who can afford private health, private education, those who don't rely on subsidised public transport and subsidised housing, and those who don’t live in areas that need strong policing, don’t notice when what they don’t need is not there.

And I suppose it would be churlish to mention the taxes the 1% contribute to the state allow them to keep their staff on low wages (subsidised by in work benefits) and keeps their staff healthy (NHS) and educated (Schools) enough to turn up to work on subsidised public transport. 

So we should not, as Boris suggested, be "humbly thanking" the super-rich. On the contrary, they should be humbly thanking the rest of us: not for our generosity but for our incomprehension of what is happening. 
The Golden Rule, "Those who have the gold make the rules", held until relatively recently. When rule-makers began to be chosen by Parliamentary Elections, those with the gold have relied on the rest of us not really noticing they aren't fairly sharing it.


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