Britain, burdened by debt and faltering economy, urges the shift from Robin Hood-style administrations
The British tax system has been a subject of debate in recent years, with policies reminiscent of the Robin Hood character – taxing the rich to fund assistance for the poor. However, this approach has raised concerns about the impact on the economy and the flight of the super-rich.
According to the latest data, the top 1% of workers in Britain contribute a staggering 29% of all income tax revenue. This trend has continued under successive British governments, leading to a situation where Britain is increasingly becoming an "enclave of the over-taxed and under-invested".
In 2024, the Labour government introduced a budget that was characterized by a punitive tax regime. This move, coupled with concerns about tax exemption on worldwide income and support for a failing nanny state, led to a mass exodus of the super-rich. The departure of these high earners has left a £51 billion budget deficit that the Labour government needs to address.
The government's current tax policies for the 2025/26 tax year maintain income tax rates of 20% (basic), 40% (higher), and 45% (additional) for earnings above £125,140. The personal allowance, currently frozen at £12,570 until 2028, is tapered out for incomes over £100,000, effectively increasing the marginal tax rate for those in the £100,000–£125,140 income band. Employer National Insurance Contributions (NICs) have increased from 13.8% to 15%, with the threshold lowered from £9,100 to £5,000, while employee NICs remain at 8%.
These policies mean the top 10% of earners, who typically earn above the higher-rate threshold (£37,700) and especially those above the additional rate threshold (£125,140), face a marginal income tax rate up to 45% plus increased employer NICs, increasing the overall tax burden on higher earners. The high tax rates and frozen allowances may incentivize tax planning/avoidance but the government's effort to close the tax gap and modernize compliance could reduce these opportunities.
Proposed but not yet enacted ideas, like raising the personal allowance significantly (e.g., to £45,000), are under public and political discussion but have not been implemented, meaning the current structure creates strong tax disincentives for higher incomes yet leaves open questions on capital gains or other wealth taxes.
As the impact of the super-rich leaving on government forecasts has yet to be fully accounted for, the outlook is grim. The idea that the super-rich would return without some commitment to helping carry the weight from the broader public is unrealistic. The government's refusal to propose measures to retain or attract the super-rich is a cause for concern.
In conclusion, the UK's current tax policies create a heavy burden on the top 10% of earners, with marginal income tax rates up to 45% and increased employer NICs. The government's efforts to modernize compliance and close the tax gap may reduce opportunities for tax avoidance, but the lack of economic incentives for wealth retention remains a concern. The ongoing debate around raising the personal allowance and the impact of the super-rich leaving on the economy underscore the need for careful policy-making in the coming years.
[1] HM Revenue & Customs. (2023). Income tax rates and bands. [online] Available at: https://www.gov.uk/income-tax-rates
[2] Institute for Fiscal Studies. (2023). Personal allowance and higher rate threshold: historical timeline. [online] Available at: https://www.ifs.org.uk/uploads/timeline_personal_allowance_and_higher_rate_threshold.pdf
[3] HM Revenue & Customs. (2023). Interest rates on tax underpayments. [online] Available at: https://www.gov.uk/interest-rates-on-tax-underpayments
[4] HM Treasury. (2023). Finance Bill 2023-24: Draft clauses and explanatory notes. [online] Available at: https://www.gov.uk/government/publications/finance-bill-2023-24-draft-clauses-and-explanatory-notes
[5] HM Revenue & Customs. (2023). Tax gap. [online] Available at: https://www.gov.uk/guidance/tax-gap-overview-and-methodology
- The World news about the UK's economic situation has been talking about the increasing tax burden on the top 10% of earners, with some reports suggesting that the marginal income tax rate reaches up to 45%.
- In the realm of Business, concerns have been raised about the impact of UK's tax policies on the flight of the super-rich, with some suggesting that the departure of these high earners has left a substantial £51 billion budget deficit.
- The UAE's opinion section has been discussing the strategies that the UK government could employ to retain or attract the super-rich, as their departure has implications on the overall economy.
- In the general-news, there have been debates about the potential increase in the personal allowance, which could alleviate some of the tax disincentives for higher incomes.
- The Finance and Politics sections have been closely monitoring the government's efforts to modernize compliance and close the tax gap, as well as the potential implications of these changes on tax avoidance strategies.
