BoJo-onomics: Is Boris Right on Taxes for the ‘Wealthy’?

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Andy Wood

Andy is a practical, creative tax adviser who assists a variety of clients in achieving their personal and commercial objectives in the most tax efficient manner.

Boris Johnson, Politics, Contradictions & the Institute for Fiscal Studies

It’s possible to say without fear of contradiction that there’s precious little compromise in politics at the moment.

Across a wide range of topics positions are fiercely polarised.

If we leave aside the most notable and contentious issue – the looming prospect of Britain’s withdrawal from the European Union – for just a moment, opinions about matters economic seem particularly entrenched.

Take, for example, the issue thrown up by the publication of a new report by the Institute for Fiscal Studies focusing on the individuals forming the wealthiest one per cent of the UK’s population.

The study highlighted the extent to which the economy has become increasingly dependent on those who own the greatest concentration of the country’s riches.

Over the last eight years, as the Government has raised the tax-free Personal Allowance threshold to the £12,500 level which took effect in April, the proportion of individuals paying Income Tax has fallen.

In fact, as the IFS illustrates, a record 43 per cent of people no longer pay the tax.

What that has meant is that the burden has increased on those arguably most able to pay.

Planning to Tax the Rich & Wealthy?

The IFS notes that the richest one per cent now account for 27 per cent of all Income Tax received by the Treasury.

Given that the latest set of annual figures released by HMRC reveal a 20 per cent increase in Income Tax contributed by individuals in five years, it’s enough to make one wonder whether a situation conjured up by an infamous apocryphal phrase attributed to the former Labour Chancellor of the Exchequer, Denis Healey, (“tax the rich until the pips squeak“) has come to pass.

Whilst the public purse benefits, the IFS is astute enough to recognise the dangers inherent in relying too heavily on any tax paying group.

As one of the organisation’s experts told the Daily Telegraph, there are “additional risks if such a large share of your revenues is coming from a small group”.

Taking that on board, proposals to spread the load might seem perfectly sensible.

During his victorious campaign to succeed Theresa May as Prime Minister, Boris Johnson announced plans to raise the higher rate of Income Tax from the threshold of £50,000 scheduled to come into force in the next financial year to £80,000.

The IFS offered a fairly critical take on his suggestion, describing how it would only benefit the wealthy and cost in the order of £9 billion.

Nevertheless, at a time when even the threat of a ‘no-deal‘ Brexit is impacting on the economy and other countries are dangling tax breaks in order to attract some of Britain’s well-remunerated talent, might it be worth providing incentives to retain their skills and their contributions to the nation’s wealth?

After all, the new statistics made available by the IFS set out how one third of the UK’s wealthiest 10 per cent of people are business owners, who potentially have a greater influence on economic fortunes than simply opening their own wallets.

However, it could be said that, regardless of the appeal of the new PM’s ideas to Britain’s rich, a more fundamental point is where the cash to fund the increase in the Income Tax threshold will come from.

Mr Johnson has maintained that his campaign promise would be paid for from money already set aside by Mrs May to soften the blow of a ‘no-deal’ Brexit.

Since taking up residence in Number 10 Downing Street, though, he’s already seen his appointee as Chancellor of the Exchequer, Sajid Javid, announce a further £2.1 billion to help meet the costs associated with departure from the EU.

Does that mean Mr Johnson’s hands being tied as he attempts to reduce the tax burden on the rich?

Britain’s new leader will doubtless be hoping that, in trying to balance the needs of the affluent and HMRC, it isn’t UK plc which ends up being squeezed.

 

If you have any comments on this article or any queries about tax in general then please get in touch.

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