The broadest shoulders, the greatest burden?

The Treasury has finally supplied an answer to my question about the basis on which the Prime Minister and the Chancellor claimed in their party conference speeches that the rich are paying a greater share of tax than under the previous government. I have written about it in The Independent on Sunday today.

George Osborne, in his party conference speech on 8 October, said: “In every single year of this Parliament the rich will pay a greater share of our nation’s tax revenues than in any one of the 13 years that Labour were in office.”

David Cameron, in his speech on 10 October, said: “The rich will pay a greater share of tax in every year of this Parliament than in any one of the 13 years under Labour.”

The Treasury referred me to this HM Revenue & Customs table, which includes the following:

The Treasury also said that its previously unpublished provisional estimates were that the top 10 per cent would pay about 57 per cent of income tax in 2013-14 and 2014-15.

There are three problems with this information.

1. It covers income tax only, which raises just 27 per cent (IFS, A Survey of UK Tax System, page 4) of what Osborne called “our nation’s tax revenues”, and covers only income tax payers.

2. It shows that the top 10 per cent paid a smaller share of income tax in the 2010-11 tax year than in at least four years of the Labour Government.

3. “Figures for 2008-09 tax year are not currently available,” according to a note on the table.

The first is the most serious defect. Estimates do exist for the shares of all taxes, including National Insurance, VAT and everything else, paid by households, and the share paid by the 10 per cent with the highest income. They are compiled by the Office for National Statistics (table 14), but they do not predict the future, so they go up until only 2010-11. Again, that year shows a fall in the share paid by the top 10 per cent, from 28.5 per cent in 2009-10 to 27.5 per cent in 2010-11.

The Treasury is capable of producing its own estimates for the years 2011-12 to 2014-15, at least of the main numbers (total direct and indirect taxes by decile group), using its Intra-Governmental Tax and Benefit Microsimulation Model (IGOTM, pronounced “I got ‘em”). A Treasury spokeman said, however, that it preferred to base its data on actual tax paid rather than estimates of the notional allocation of indirect taxes including VAT and duties, and “intermediate” taxes such as employers’ National Insurance contributions.

Referring to the income tax figures, the spokesman said: “Those are the numbers on which those remarks [by the Chancellor and the Prime Minister] are based.” I said that the words “our nation’s tax revenues” implied total taxes. He said: “It is quite usual to use ‘tax’ to mean income tax.”

As I say in The Independent on Sunday, it seems likely that, after the first year, 2010-11, the top 10 per cent have paid and will pay a greater share of total taxes than they paid under Labour. But this is a deduction, rather than a computer simulation, which the Treasury could do but appears not to have done. It is a deduction based on the income tax figures, and on the increases in other taxes – capital gains tax and stamp duty – that fall on the better-off. The trouble is that VAT falls more heavily on the poor (IFS, Personal taxes and distributional impact of budget measures, page 7), and it went up last year. I would guess that this effect is outweighed by the heavier taxes on the better-off (and chart B5 from the Red Book, which I cited before seems to support this, although I am not sure how it works), but you might have thought that someone would actually have done the work before the Chancellor and the Prime Minister made the claim.

The second defect of the figures is that in the first year of this Parliament the rich paid a smaller share of income tax than in the last year of the Labour Government (and the ONS figures for all taxes show the same). The Treasury says that, when the Chancellor and the Prime Minister said “every year of this Parliament”, they did not include the 2010-11 tax year, because that “was based on the plans of the previous government”.

So it was, and the Conservatives could have made a political point about that, because the fall in the share of income tax paid by the rich seems to have been caused by taxpayers “forestalling” the 50p tax rate, which came in in April 2010. Rich people are more likely than other taxpayers to be able to bring forward or postpone income, which is why their income dropped in the 2010-11 tax year. Osborne could have used the drop to help to make his argument for cutting the 50p rate.

But to suggest that 2010-11 was not a “year of this Parliament” requires the reasonable listener to Cameron and Osborne’s speeches to discount the Coalition Government’s responsibility for tax policy for 11 months of it. Even allowing the new government time to prepare its emergency Budget on 22 June 2010, Osborne set policy for more than nine months of the year.

It would have been quite easy for Cameron and Osborne to stick to the average share of tax paid by the rich. They could have said: “The rich will bear a greater share of the burden of tax under this Government than than they did under Labour.” If it is true, of course, that the average share of tax paid each year by the rich is higher or predicted to be higher between 2010 and 2015 than it was between 1997 and 2010.

The third defect – the missing income-tax numbers for 2008-09 – is probably trivial, because presumably the figure was roughly the same as the years on either side and not higher than any of the figures for after 2010-11.

But the defect that matters is that, while what the Prime Minister and the Chancellor said is probably true (after 2010-11), the figures do not prove it.

That strikes me as worse than a mistake. It is a political disaster for the Coalition.

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• greggf

  I think the fact that the ‘Total Tax’ take had risen by 75% since 1999-00 to 2007-08 is a political disaster for the Labour government (or any government)!
  It seems the devaluation of sterling may have interrupted such state avarice, but regrettably it’s on the rise again.

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