Tax cut for rich means billions lost to Exchequer

Cutting the income tax for people earning more than £1m per year has deprived the Exchequer of more than £8.6bn over the past five years, according to new analysis by UNISON published today (Sunday).

The April 2013 decision to cut the top rate of income tax from 50p to 45p has also saved the richest people in the country hundreds of thousands of pounds in that time, while public sector workers haven’t had a decent pay rise in years, says the union.

An examination of HM Revenue & Customs (HMRC) statistics by UNISON shows that in the five years since the then Chancellor, George Osborne, introduced the tax cut, there have been between 15,000 and 17,000 taxpayers with annual incomes in excess of £1m.

UNISON’s analysis finds that the government’s tax cut has meant £8.6bn less in the Treasury coffers since 2013, allowing the UK’s super earners to pay on average more than £554,000 less in tax over the five-year period.

UNISON has identified a number of examples of how this ‘lost’ £8.6bn could instead have been spent on public services:

· The £8.6bn could have funded every year for five years an extra 20,000 nurses1, 10,000 extra police community support officers (PCSOs)2, 10,000 extra police officers3, and 20,000 newly qualified teachers4.

· It could have paid for 60,000 bursaries for nurses, midwives and other health professionals5, for 10,000 extra nurses1, 10,000 extra PCSOs2, and 10,000 newly qualified teachers4 – every year for five years.

· An extra £8.6bn in Treasury coffers could have meant an additional £1.7bn to put into social care every year since 2013.

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 old refrain that there is no money for public services has a hollow ring given the revenue the government could have raised, had it not been more interested in giving the country’s millionaires a huge tax cut.

“This £8.6bn could have paid for thousands more nurses, teachers and police community support officers at a time when the increasing pressure on public services is repeatedly being blamed on staff shortages.” 

Notes to editors:
– Based on 10,000 band 3 nurses at a cost of £18,333 per annum plus 25% on costs (national insurance and pension contributions)
– 2 Based on 10,000 PCSOs at a cost of £22,257 per annum plus 25% on costs
– 3 Based on 10,000 police constables at the cost of £24,111 per annum plus 25% on costs
– 4 Based on 10,000 teachers at the cost of £22,917 per annum plus 25% on costs
– 5 Based on an annual cost of £826m a year
– The top rateof 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/annum

Tax year

2013/14

2014/15

2015/16

2016/17

2017/18

 

15000

15000

16000

15000

17000

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

5 year total

£bn

£bn

£bn

£bn

£bn

£bn

Total income

36.60

34.40

39.80

35.70

38.10

£184.60

Each of these taxpayers will not pay the additional rate tax on the first £150,000 of their earnings

2.25

2.25

2.40

2.25

2.55

£11.70

If the additional rate of tax had not been cut they would have paid 50p tax on

34.35

32.15

37.40

33.45

35.55

£172.90

If the additional rate of tax had remained at 50p the tax they would have paid is

17.18

16.08

18.70

16.73

17.78

£86.45

As the additional rate of  tax has been cut to 45p the tax they have paid is

15.46

14.47

16.83

15.05

16.00

£77.81

The 5p tax cut has saved people earning over £1m

1.72

1.61

1.87

1.67

1.78

£8.65

Average gain

£114,500

£107,167

£116,875

£111,500

£104,559

£554,600

Source: HMRC; UK Income Tax Liabilities; May 2016 and May 2017; 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 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 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 in income tax every year since then.
– The saving from the 5p tax cut is £17.175bn – £15.458bn = £1.718bn, and the average gain for those earning over £1m is £114,500 (reached by dividing £1,718,000,000 by 15,000).

Media contacts:
Clare Santry T: 0207 121 5546 M: 07944 191479 E: press@unison.co.uk
Liz Chinchen T: 0207 121 5463 M: 07778 158175 E: press@unison.co.uk