Too great a tax reliance is being placed on the richest people in the UK, a leading think thank has found, warning that forcing the UK’s highest earners to foot a greater share of the country’s tax bill is putting the Government’s long-term finances at risk.
According to the Institute for Fiscal Studies (IFS) placing a greater tax burden on the rich is not a sustainable long-term strategy, as their ability and willingness to pay more tax could eventually run out.
Recent figures show that 300,000 people earning more than £150,000 a year now pay almost 30 per cent of all income tax and account for 7.5 per cent of all tax revenue.
The IFS argues that this threatens the stability of the public finances because high earners could leave the country, find ways of reducing their tax bills, or simply suffer declines in their fortunes.
Therefore, as the think tank points out, if revenue from this small group were to fail, the Government would be forced to borrow even more money than it is now, so it is advising the Treasury to try to widen the tax base by targeting other sources.
In its report, the IFS was also critical of moves to shrink the tax base further by lifting the personal allowance to £10,000, at a cost of £10bn a year, saying that the policy is a poorly targeted and an expensive way of making the poorest better off.
It suggests that a better plan would be to increase the personal allowance on National Income Contributions (NICs), or to allow people on benefits to keep more of their own money when they start work.
Meanwhile, Labour’s plans to reintroduce a 10p tax rate would be even less well targeted at the poorest and would make the tax system more complicated, the think tank claims.