One thing we hear a lot especially is that people should pay a fair amount of tax, this is something that is trotted out almost weekly by people like Owen Jones, Polly Toynbee, UKUncut amongst others.  However when you ask someone who holds this view what is a fair amount of tax for someone to pay the only answer you get is “the rich should pay more….” But they never say how much more or why they think they should pay more. 

So this got me thinking just how much tax do the rich pay a year.  Well I suppose we have to work out who the rich are.  Now I am assuming by the rich they mean this magical 1% of the population.  Now the 1% is about 300,000 people who all earn over £149,000 per year.  So someone on a wage of £149,000pa would pay a total in income tax and national insurance of £59,043.36.  An effective tax rate of 39.6% which is a fair whack of anyone’s wages to have to give to the tax man.  If the wage increases it goes up rather drastically;

  • £200,000 gives an effective rate of 43%
  • £300,000 gives an effective rate of 46%
  • £500,000 gives an effective rate of 48%
  • £1,000,000 gives an effective rate of 50%

As opposed to the average person on £20,000pa who has an effective rate of 20%.  Now looking at the effective tax rates of the “rich” I would say that anyone paying more than twice the effective tax rate of an average person is most defiantly paying their “fair” share; if not actually paying more than their fair share.

As if we look as where the tax income actually comes from the +300,000 people paying the top rate tax actually contribute £47bn a year to the treasury in tax, roughly about 30% of the total income from about 1% of the working population.  If we increase that to the top 10% of earners in the UK which is about 3million people that becomes about 65% of the total tax income paid by only 10% of the working adults in the UK. 

Now when you look at those figures it makes you wonder what these people mean by fair share.  As if anything I think the current tax system is grossly unfair, especially on those who earn large wages.  Why should Mr Smith pay 40% of his wages in tax when Mr Jones only pays 20%.  Now if Mr Smith paid effectively 20% then 20% of £150,000 is still more than 20% of £20,000. 

I can’t see any reason for increasing Mr Smith’s tax bill that would be remotely fair.  Arguing that he should pay more tax because he is rich; is well not an argument it’s an ideological left wing statement.  If these people wanted to have a properly fair tax system then the only logical tax system is a flat rate tax.  Where people pay the same percentage and those who earn more still pay more. 

So to those people who think that the rich should pay their fair share, I suggest you go and look up what fair actually means before you start using it; and stop using it as a disguise for what actually is the politics of envy and the fact you want to impose punitive taxes on those who work hard and earn a good wage.  In a properly fair society people would all have an equal tax rate and pay a fair proportionate of their wages to the tax man.  Not this unfair system we have now and most defiantly not your socialist ideas of penalising the rich simply because they are rich.

Now on the face of things a cut of the VAT rate from 20% to 17.5% or maybe even to 15% sounds like a great idea and that it’s an easy way to get money back in to people’s pockets; so that they can go out and spend spend spend and watch the economy grow at an astronomical rate.  Well that’s what Ed Balls would have you believe that such a simple thing could be the solution to the UK’s current economic situation. 

Now not being one to just dismisses an idea because it comes from Labour, as they have at times had one or two good ideas within the plethora of total nonsense.  I decided to look up just what we actually pay VAT on.  To my surprise there is actually not a huge amount of things that we do pay it on.  But I think the easiest way to illustrate this would be with a hypothetical family and their monthly spending. 

Now for this Mrs Smith earns £25,000 and takes home after tax £1,613.53 and Mr Smith earns £20,000 giving him a take home pay of £1,330.20.  With their outgoings being the following;

  • Mortgage payment of £700
  • Monthly Gas and Electric £100
  • Council tax bill £110.60
  • Food bill £250
  • Car loan payment £300
  • Pension payments £500
  • Petrol for car £350

Total monthly spend of £2310.60 out of £2943.73 leaving a disposable income of £158.28 per week. 

Now just which of those items have VAT on them, and what rate of VAT they have it at.  Well most financial services are exempt from VAT so that’s the Mortgage, pensions and Car Loan both at zero rate of VAT. But then we have the heating and electric bill’s, now there is VAT on them but not at 20% its only on them at 5%; so a cut in the 20% rate would not affect those bills.  The council tax bill has no VAT on it either.

Which leaves the food bill and petrol, now both of these have VAT on them and both at 20%; however it’s a minority of foods that have VAT on them things like chocolate biscuits, ice cream, fizzy drinks, crisps ect.  So the majority of day to day food is not really subject to VAT.  Now even the guardian accepted that the 2.5% increase in VAT added £33 per year to a shopping bill so a £2.5% cut in VAT would save this family about £2.75 per month.  Not really an earth shattering amount is it?

Then on to the petrol, the £350 is about 246l of petrol at £1.42l.  Now of that £1.42 only 23.6p is VAT at 20% so a 5% cut in vat would save 5.9p and 2.5% cut only 3p.  Which works out to a monthly saving of £7.38 for a 2.5% cut and £14.51 for a 5% cut.

Therefore in the Smiths monthly spend a 5% cut in VAT would save them £20.01 a month.  At a cost of £13bn to the nation, which if they just gave every one of the 30 million people over the age of 18 their share of the £13bn it would equate to the government giving everyone £433.33 each.  Which you would have to argue is a much more sensible way to redistribute £13bn in to the economy. 

So yes a 5% cut in the rate of VAT would have very little effect on the average family as it would equate to giving the two earners in this family £2.50 extra a week to spend which is hardly going to generate a mass stimulus that the economy needs.