Actually, the rich pay lots of tax. But on income, not their wealth | Patrick Collinson | Money

We know that giant multinationals are engaged in industrial-scale tax avoidance. We know from the Panama and Paradise papers how some individuals will use every offshore trick to dodge taxes. We know that billionaires flock to Monaco to hide from any responsibility to their fellow citizens back home. But let’s not deceive ourselves about who is paying which taxes and who isn’t.

HM Revenue & Customs this week published an analysis of the income tax paid in the UK by salary band, region and gender. In total we paid £174bn income tax in 2016-17, the latest year for which figures are available. But of that, £52.5bn – nearly a third of all tax raised – was paid by the 381,000 taxpayers who earn more than £150,000 a year. The tax paid by those 381,000 individuals (overwhelmingly male) was more than all the income tax paid by the first 20 million taxpayers.

In London, the picture is even more stark. The city has 4.2 million income tax payers, but just 87,000 individuals earning over £200,000 a year paid nearly half the £43.8bn income tax raised in the capital. It’s uncomfortable to say it, but if we lose all those absurdly paid investment bankers to Brexit, the hit to the public purse will be painful, as they are clearly paying vast amounts to the Treasury.

Those London bankers, lawyers and their ilk paid more income tax in 2016-17 than the entire sum raised from every income tax payer in Scotland and Wales combined.

None of this is a plea on behalf of the rich. Scotland’s income tax rates are fairer and more progressive than England’s. Neither is there any case for a cut in the 45% rate paid by those earning over £150,000 – the figures suggest a chancellor would be mad to do this, given how much the 45% band earns for the Treasury.

So how does all this tie up with the pervasive view that the rich are getting away with it, best encapsulated by New York billionaire Leona Helmsley, overheard saying: “Only the little people pay taxes”.

The answer lies in the fact that while as a country we tax the incomes of PAYE employees relatively heavily, we leave the enormous wealth of the truly rich, much of it accumulated through property gains, largely untouched.

The great triumph of the rich is that they have persuaded the average person to vote against taxes on wealth, such as inheritance tax, and taxes on property – such as a land valuation tax or even a properly progressive council tax. A £17m mansion in Mayfair comes with a ludicrously low maximum council tax bill of £1,376. The phenomenal increases in its value are likely to be free from capital gains tax. Trust laws enable it to be passed through generations largely unfettered by the taxman.

Meanwhile, the only real wealth tax in the western world, France’s impôt de solidarité sur la fortune levied on fortunes greater than £1m and introduced by the French socialists in 1981, was abolished in 2017 by President Macron. It’s partly why he’s earned the moniker “president of the rich”.

Thomas Piketty, the French economist, painstakingly detailed how western societies have reverted to Victorian levels of inequality, with inheritance of wealth the main path to affluence, and he noted how the bigger the fortune is, the faster it grows. He also highlighted how wealth was far more heavily taxed in the years after the second world war – years when inequality narrowed dramatically, only to reverse when those taxes were cut.

The solution? The sort of progressive tax on private wealth that Macron has abandoned in France, although the chances of that happening in the UK are virtually zero. Lifting the cap on council tax may be a more of a vote winner, while a land value tax – at the very least stopping the gains from planning permission going to developers rather than the public – could also be popular. In the same year that those bottom 20 million taxpayers paid £50bn in income tax, the net wealth of the UK rose by nearly half a trillion pounds, yet almost none of that gain was taxed. As the chancellor lines up the spring statement, the debate should not be about income tax or personal allowances, but how we reorientate the tax system to where the money really lies.

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