Surely we must pay more taxes!?

Norah. Raising the personal tax allowance to £20,000 would cost 55 billion a year.

Silverbrooks

Norah. Raising the personal tax allowance to £20,000 would cost 55 billion a year.

Please explain.

Richard Murphy, who, among other things, was a cofounder of the Tax Justice Network many years ago, addressed the question of how to pay for defence in a recent blog.

He first of all referred to a tract written by J.M. Keynes at the start of WW2 called How to Pay for the War. Keynes made two points.
I quote from Murphy's blog: Keynes said that we must tax the rich more because they've got the money, and they must, therefore, make the sacrifice because we can't ask what he would have described as ordinary people to make that sacrifice because we're also asking them to serve in the front line to deliver the victory that we need. It was not possible to ask those people to give more than they already were, because they had nothing more to give, whereas the wealthy clearly had got more to give.

They could give more money, and they could give something else, which was their consumption. They could give up things and still live a good life, whereas those who were on low levels of income could not.

Murphy contends that what was true in 1940 is still true in 2025

It is still true that the wealthy do have the money, and the wealthy have the good life, and that there are vast numbers of people in the UK who have very little more they can give because they simply don't have enough already. So, we can use the lesson that Keynes gave us. We should be taxing the rich more because they are the people who should be paying for the peace if that is what we are trying to preserve.

Having said that he suggests tax measures which could bring in substantial sums:

restrict tax relief on pension contributions in the UK to the basic rate of income tax, so that everybody gets the same rate of tax relief however much they earn. In other words, you do not get more subsidy for your wealth if you are wealthier than you do if you are a basic rate taxpayer, which is what happens at present. We have a perverse system which actually subsidises the savings of the wealthy more than it subsidizes the savings of those who are on low incomes.

If we were simply to equalise the rate of tax relief, which I think would be a definition of fairness, that we could raise £14.5 billion

^ We could, for example, align the capital gains tax rate with the income tax rate in the UK - a perfectly sensible thing to do because both capital gains and income end up delivering pounds into people's pockets. The tax system should be indifferent as to where that pound came from. It is fair that the tax system is indifferent in that way because both income and capital gains enrich a person and there's no reason why one should be taxed less than another except for the fact that our tax system is biased to the wealthy and, basically, you've got to be wealthy to have a capital gain.^

This would ^ deliver an additional £12 billion of tax revenue to the government each year.^

we could, for example, reform corporation tax. Corporation tax is in a total mess in the UK. It isn't charged on hordes of companies.
And if we increase the rates of corporation tax in the UK for larger companies to the rates that are commonplace around the world, we could raise another seven billion pounds of corporation tax a year. From corporation tax, we could, then, raise another £19 billion, and I can keep going.

we could recreate something that we had for a long time called an investment income surcharge in the UK. This is, in effect, a national insurance charge on things other than work. Why is it, after all, that work has the highest tax rate in the UK, but if you get your income from savings, investments, rents, trust funds and everything else, well, that gets a lower tax rate? This is perverse, stupid, unreasonable, unfair, irresponsible.

This, and a lot more, is set out in the Taxing Wealth report that he published last year: taxingwealth.uk/

There is a great deal of inequity in our tax system which is biased towards enabling the wealthy to hang on to their wealth.

A week or two ago petra posted a link to a documentary called The Spider's Web. It's available on youtube and is well worth watching:
www.youtube.com/watch?v=np_ylvc8Zj8

I realise that many of us Gnet posters are very comfortably off and have some 'wealth' that we would like to protect, but what we have is chicken feed compared with the wealth which is hidden in tax havens and protected by favourable tax regimes.

www.taxresearch.org.uk/Blog/2025/02/22/how-to-pay-for-defence/

I quoted extensively because Murphy knows far more than I do and has been researching and writing about taxation for a long time. You may disagree with some things but I think his suggestions are sound.

I think Keynes is even sounder! He was, after all, one of the greatest economists of the 20th century.

The trouble with the very wealthy is that many of them use tax havens across the world and don’t like parting with any of their money at all. Not all of them of course but a large number. Some actually flee the country ( mine too) and live elsewhere ,USA or wherever. Many pop stars used to do this and I don’t think things have changed.

Mollygo

Barleyfields

That question never gets answered MOnica.

Wealthy is anyone who doesn’t need the WFA,
who can leap into an EV unconcerned about the life of the battery,
who will be unworried by the discussions about future banning of gas boilers and obliging people to have a heat pump.

The word is, of course, subjective. Nevertheless, the average (mean) income for employees (which most working age people are) was about £37.5k in the UK in 2024. There are a number of variables, but after deductions that equates to about £26k for most people. My guess is that most people need more than £6k a year to live even a frugal life, so they won't have anywhere near £20k a year to save. Crucially, that's the mean, so 50% of people have less than that. They most certainly won't be able to save £20k.

For the majority of people in the UK, anybody who doesn't have to think about heating or travel costs is wealthy. Whatever the definition of 'wealth' the fact is that at least 50% of the country most certainly isn't wealthy. In fact, they're probably juggling money around to afford the essentials and stay out of debt. I really don't see why people who don't have such precarious lives should be given a tax break by the government.

restrict tax relief on pension contributions in the UK to the basic rate of income tax

I really don't understand why governments are so reluctant to do that.

New pensioners receiving their lump sums had a massive state subsidy to their pensions when they made their contributions - more so if they were paying higher rate tax. They then have the cheek to moan about having to pay tax if they invest to money which was gifted to them by the government in the first place.

I've seen estimates that tax exemptions for pension contributions for higher rate taxpayers cost the Treasury at least £8 billion a year.

Can’t we just rejoin the customs union and/ or the single market? Just imagine the outcry from the Conservatives after saying that Labour would have to raise taxes.

nanna8

The trouble with the very wealthy is that many of them use tax havens across the world and don’t like parting with any of their money at all. Not all of them of course but a large number. Some actually flee the country ( mine too) and live elsewhere ,USA or wherever. Many pop stars used to do this and I don’t think things have changed.

Tales about the "very wealthy" seem to be used by anybody towards the wealthy end of the spectrum to protect their interests.

MayBee70

Can’t we just rejoin the customs union and/ or the single market? Just imagine the outcry from the Conservatives after saying that Labour would have to raise taxes.

Rejoining the customs union or single market isn't that simple.

Barleyfields

That question never gets answered MOnica.

I know, which is why I keep asking it.

Every one says 'tax the wealthy', but for that you need to know exactly what level of income you have in mind. The HMRC do not work on wooly definitions like 'anyone who can manage without the WFA'

On a more practical basis, the number of wealthy people in this country is fewer than you would expect. The top 1% of workers in this country earn on average £186k a year, the top 5% around £87k and the top 10% £72k

In 2024-25 the top ten per cent of income tax payers earned a third of all income and paid two thirds of income tax. A third of the adult population pay no income tax at all

The UK is also set to lose more than 500,000, or 17 per cent, of its millionaires by 2028. With fewer higher earners, who currently pay a large portion of income tax, the burden will be passed to those further down the income scale who can least afford it.

No links because I collected this information from a whole variety of sources including ONS, Statista, Tax Payers Alliance and others.. I would fill a whole GN page with ll the links.

Another fan of Richard Murphy and Dan Neidle.

There are so many ways that more revenue could be raised but it’s the path of least resistance and with over 37 million people liable to tax, the easiest route is PAYE. Everything else, pursuing evaders and avoiders and complex casework requires highly trained staff.

When you look at the breakdown of the 40 billion annual tax gap, it’s small businesses that are the worst offenders.

The share of the tax gap attributed to small businesses has increased over the last 5 years, from 44% of the overall tax gap in 2018 to 2019 to 60% in 2022 to 2023.

HMRC need more expert staff.

TaxWatch reported:

• 40% reduction in civil servants defined as ‘tax professionals’ from 2016 to 2023

• The overall HMRC workforce has shrunk since 2010, despite the challenges of the department’s workload increasing as the tax regime has become more complex

• Salaries paid to senior HMRC staff have fallen by at least 20% when adjusted for inflation since 2010, and now lag the civil service average by around £2,000.

Fully qualified tax professionals within HMRC

The in-house tax technical development programme, which is seen as equivalent to the Chartered Tax Adviser qualification, is currently known as the Tax Specialist Programme. Very limited numbers start this course each year, and the numbers having completed it in recent years are suggestive of a high drop out/non completion rate, despite the fact the course has been scaled back to three years duration (previously it was four years). There has been a trend of accepting existing civil servants onto the course with much lower entry requirements, for what remains an academically rigorous course. The numbers finishing the course are insufficient to take over from the retirement and departure rates of staff that came through the qualification and built up decades of experience, who are now reaching the end of their careers. HMRC doesn’t track the staff holding these highest qualifications, which is so fundamental to workforce planning and staff skills development.

A perennial problem for HMRC is also that staff with significant internal training and experience are much sought-after within private practice, especially in particular areas that have grown disproportionately in recent years, such as Dispute Resolution and Investigations. Whilst this has always been a factor, recent changes to the HMRC office estate combined with mandatory 60% office attendance requirements and pay differentials risk exacerbating this trend further.

Recruitment of fully qualified tax professionals from the private sector has largely been unsuccessful because of the inability to offer comparable salaries. According to the 2023 Tax Salary Guide produced by recruitment agency Pure, the minimum package for a manager in the private sector is £85,000, whereas the equivalent HMRC grade 7/6 is on a median salary for the 2022-23 year of £58,200.

I have experience of this as I was grade 7 and did train for four years. The training was tough and the entry requirements used to be very high. Once qualified you became a target for the private sector to recruit. I did resist for several years but eventually moved to the private sector in the late 1980s.

But the number of people who could pay more tax without their lifestyle being too adversely is maybe higher than you think.

If the principle is accepted that those with the "broadest shoulders" should pay more tax than those at the bottom of the income, it's not too difficult to devise a system of progressive taxation.

Incidentally, do you have any details of the third of adults who pay no income tax? Is it because they're so poor they don't have any income? Or is it because they have other sources of income than income tax? (eg my ex hasn't paid income tax for nearly 30 years because he hasn't had paid work - he earns his money from property development).

It would be interesting to know how much of the money from the millionaires who are about to leave the country actually circulates in the UK economy. Some of them aren't UK nationals anyway.

MOnica, you are confining your observations to ‘earners’, i.e. people who are paying income tax. But there are far more wealthy people who don’t pay income tax, or who structure their incomes to ensure they pay as little income tax as possible. Remember our last PM, an exceedingly wealthy man who paid only 22% of his income in direct taxation?

Of your cited sources I would disregard the so called Taxpayers Alliance as they exist only to lobby for minimal taxation of the wealthy . They have no interest in minimising taxation for common or garden PAYE tax payers.

MayBee70

Can’t we just rejoin the customs union and/ or the single market? Just imagine the outcry from the Conservatives after saying that Labour would have to raise taxes.

Brian Cox ( the scientist, not the actor) has just said the same on Facebook. I rest my case….

Well the PM and the Labour Party were going to target the billionaires and trillionaires, they certainly went on about it and yes, they were going to be made to pay blah, blah, blah. Oh wait.....

silverbrooks

Grade 6-7 is now known as Principle or team leader.

I’m still in contact with many of my colleagues, some of whom are still working.

We don’t pay tax. Once you are retired, unless you have investments, you don’t here. Nothing dodgy about it, we paid for our pensions whilst we worked. We are not rich and our income is low but then we don’t have a mortgage.

growstuff

nanna8

The trouble with the very wealthy is that many of them use tax havens across the world and don’t like parting with any of their money at all. Not all of them of course but a large number. Some actually flee the country ( mine too) and live elsewhere ,USA or wherever. Many pop stars used to do this and I don’t think things have changed.

Tales about the "very wealthy" seem to be used by anybody towards the wealthy end of the spectrum to protect their interests.

I have absolutely no idea what you are getting at,sorry.

nanna8

growstuff

nanna8

The trouble with the very wealthy is that many of them use tax havens across the world and don’t like parting with any of their money at all. Not all of them of course but a large number. Some actually flee the country ( mine too) and live elsewhere ,USA or wherever. Many pop stars used to do this and I don’t think things have changed.

Tales about the "very wealthy" seem to be used by anybody towards the wealthy end of the spectrum to protect their interests.

I have absolutely no idea what you are getting at,sorry.

It's simple. Over half of people have income above the average income (by definition). Naturally, they want to preserve their assets, so every time they're threatened, they jump up and down, screech "not fair" and shout "look at the very wealthy - not us!"

They don't want to share their assets with those who have less than the average (50% by definition), so they don't mind too much if services are cut - after all, they can afford to pay for what they need/want - who cares about the rest?

PS. I realise that's stereotypical, but there are certainly some who fit the stereotype.

nanna8

We don’t pay tax. Once you are retired, unless you have investments, you don’t here. Nothing dodgy about it, we paid for our pensions whilst we worked. We are not rich and our income is low but then we don’t have a mortgage.

In the UK, people don't pay tax on pension contributions when they make the contributions. Most end up paying less tax on the money anyway because most don't meet the same tax thresholds after retirement from paid work. People pay tax on NI. The state pension is based on the number of weeks/years people have paid NI not on the monetary value of contributions. Most people have paid for their state pensions - some haven't - and some receive pension credit rather than being left destitute. Some pensioners have accrued shedloads of assets without working - I see no reason at all why they shouldn't pay tax, especially as they don't contribute to their health costs (which I believe, even as pensioners, you do in Australia).

Autre pays, autres mœurs!

I completely understand why the wealthy posters on GN want to increase income tax and and keep the services free, because they have already had the benefits that system provides and want to continue to benefit from it.

My point of view is that income tax is high enough at 45% plus to increase further is a disincentive for enterprise, those successful individuals can well afford to pay into health insurance or elderly care and certainly don’t need the state pension. Instead of buying a second home, or frequent long haul holidays, or a new luxury car every 3 yrs, they can well afford to well afford to loose state benefits.

That would free up massive public services for those not so fortunate, it is the system used in many countries, if circumstances change and wealth reduces the state system picks up the costs.

Expanding the public spending issues if you think Cameron style austerity was bad, expect worse, to increase defence spending and increase health spending is a massive challenge. There is ample wealth in the UK we are not using it properly, those on low income obviously want universal benefits they NEED it, the wealthy also want it because they FREELOAD on it.

Thanks growstuff I hadn’t understood how that works. We don’t get a state pension because we have a work one which is at a level higher than the ‘low income’ rate. Still not that good but liveable.

David There are plenty of tax loopholes which could be closed without increasing the top rate of income tax. Pension contributions and ISAs are just two.

I'd like to hear any argument why people in the top half of the income distribution curve should benefit from tax loopholes more than those in the bottom half.

Getting money to circulate more would result in more taxes being paid. That won't happen if a relatively small group of people hoard money they don't really need.