Tax cut for rich means billions lost to Exchequer

Cutting income tax for people earning more than £1m per year has deprived the Exchequer of more than £11.1bn over the past sixyears, according to new analysis by UNISON published today (Sunday).

The government’s decision to reduce the top rate of income tax from 50p to 45p in April 2013 has also saved the rich hundreds of thousands of pounds, while public sector workers have not had a decent pay rise in years, says the union.

An examination of HM Revenue & Customs (HMRC) statistics by UNISON shows that between 15,000 and 19,000 taxpayers earned in excess of £1m over the past sixyears. This is since the then Chancellor George Osborne introduced the tax cut.

UNISON’s analysis finds that this has meant £11.1bn less in the Treasury coffers, allowing the UK’s super earners each to reduce their tax bill by more than £656,000 on average over the six-year period.

The union has identified how these ‘lost’ billions could instead have been spent on public services. The £11.1bn could have funded every year for five years:

  • An extra 30,000 nurses1; 10,000 extra police community support officers (PCSOs)2; 15,000 extra police officers3; and 20,000 newly qualified teachers4.
  • At least 50,000 bursaries for nurses, midwives and other health professionals5; 10,000 extra nurses1; 15,000 extra PCSOs2; 15,000 extra police constables; and 10,000 newly qualified teachers4.

Social care could also have benefited from an additional £1.85bn every year since 2013 with £11.1bn over six years from Treasury coffers.

UNISON general secretary Dave Prentis said: “It’s downright disgusting that public services have lost out on billions of pounds, while the richest in this country have benefitted handsomely from the government’s tax policies.

“The claim that there’s no money for public services has a hollow ring given the revenue the government could have raised. That is if ministers hadn’t been more interested in giving the country’s millionaires a huge tax cut.

“The increasing pressure on public services is repeatedly being blamed on staff shortages. These billions could have paid for thousands more nurses, teachers and police community support officers.”  

Notes to editors:
– 1 Based on 10,000 nurses at £22,128 per annum plus 25% on costs (national insurance and pension contributions).
– 2 Based on 10,000 PCSOs at £23,346 per annum plus 25% on costs.
– 3 Based on 10,000 police constables at £23,124 per annum plus 25% on costs.

4 Based on 10,000 teachers at £22,917 per annum plus 25% on costs.
– 5 Based on an annual cost of £691m a year for 50,000 bursaries.
– The top rate of income tax refers to the additional rate (currently 45p in the pound) that applies to earnings over £150,000 per year.

Number of taxpayers with incomes (from earnings, savings and dividends) over £1m a year using HMRC forecasting:

Tax year 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19
Number of taxpayers with incomes over £1m a year  15,000 15,000 19,000 16,000 17,000 19,000


Change in income tax liability due to cut to additional rate from 50p to 45p in the pound and average gain
Tax year 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 6 year total
  £bn £bn £bn £bn £bn £bn £bn
Total income  36.6 34.4 46.6 35.5 39.7 43.1 £235.9
Each of these taxpayers will not pay the additional rate tax on the first £150,000 of their earnings 2.25 2.25 2.85 2.4 2.55 2.85 £15.2
If the additional rate of tax had not been cut they would have paid 50p tax on  34.4 32.2 43.8 33.1 37.2 40.3 £220.8
If the additional rate of tax had remained at 50p the tax they would have paid is 17.2 16.1 21.9 16.6 18.6 20.1 £110.4
As the additional rate of  tax has been cut to 45p the tax they have paid is 15.5 14.5 19.7 14.9 16.7 18.1 £99.3
The 5p tax cut has saved people earning over £1m 1.7 1.6 2.2 1.7 1.9 2.0 £11.1
Average gain £114,500 £107,167 £115,132 £104,375 £109,265 £105,921 £656,359

Source: HMRC; UK Income Tax Liabilities; May 2016 (for years 2013/14 and 2014/15) and May 2018 (for years 2015/16 – 2018/19); Table 2.5

– So taking the year 2013/14 as an example – £36.6bn is the total taxable income (from earnings savings and dividends) of the 15,000 people with incomes over £1m.
– But each one of them does not pay the additional rate of tax on their first £150,000, so that has to be excluded, that is 15,000 x £150,000 = £2.25bn.
– This leaves £36.6bn – £2.25bn = £34.35bn (rounded up to £34.4bn) taxed at the additional rate.
– Before April 2013, the additional rate of tax was 50p in the pound so people earning over £1m would have paid £34.35bn x 50p = £17.175bn (rounded up to £17.2bn) in income tax.
– From April 2013 the additional rate was cut to 45p in the pound so they have paid £34.35bn x 0.45 = £15.458bn (rounded up to £15.5bn) in income tax every year since then.
– The saving from the 5p tax cut is £17.175bn – £15.458bn = £1.718bn, (rounded down to £1.7bn) and the average gain for those earning over £1m is £114,500 (reached by dividing £1,718,000,000 by 15,000).