Contractors, alongside other higher earners, already bear a significant tax burden. The Labour party has pledged to target non-doms for tax increases, but the politics of envy result in sums that just don’t add up. Place too high a burden on high earners and the Laffer Curve kicks in, which actually reduces tax take. That benefits no one.
According to an analysis by The Telegraph, “115,000 non-doms pay as much as 10m low-income workers”. An earlier Telegraph analysis from 2013 shows that the top 1% of highest earners pay a third of all income tax. Consistent data from the Office for National Statistics shows that this has not changed.
These two facts would suggest that, according to a phrase so beloved by politicians, the greatest burden is indeed already being carried by those with the broadest shoulders. Is not wealth cascading down through the income bands as a result of the UK’s progressive tax system?
With the advent of new HMRC powers that include the General Anti-Abuse Rule (GAAR), Accelerated Payment Notices (APNs) and Follower Notices, aggressive tax avoidance is becoming increasingly difficult to justify, in financial terms at least. And of course tax evasion is illegal.
But why would we want to punish high earners, including non-doms, even more than they already are? The Laffer Curve theory suggests that at some point taxation levels are considered by taxpayers to be punitive. At this point those subject to excessive tax rates start taking tax avoidance action in a way that they did not when rates were lower.
This actually occurred when the 50% higher rate of tax was introduced in 2010. Shadow Chancellor Ed Balls has promised to reintroduce the 50p band for those earning more than £150,000 a year if Labour wins the election. So, we will be faced with the double whammy of non-doms choosing more tax benign jurisdictions and taking their money and tax payments with them when they leave, and industrial scale tax avoidance by those who are forced to remain.
We can only speculate about the loss of income for the Exchequer, but the evidence suggests it will be significant. And who will be required to pick up the tab for the balance if these measures are introduced? The rest of the UK’s taxpayers, including contractors.
We’ve had five years of the Coalition producing all sorts of terrible legislation for businesses and contractors and it sounds like Labour plans to do the same with more poorly thought through (if thought through at all) policies, largely based on envy.
Is there a credible alternative being offered by the smaller parties? It is very difficult for contractors to know who to choose, especially when the current campaign features politicians of all colours saying whatever they can simply to secure votes, without actually believing what they say.
If we identify a party that is studying the facts and making considered choices, rather than pulling policy out of media driven headlines, we’ll be sure to let you know. But right now, credibility in the 2015 General Election campaign is very thin on the ground, and the outlook is not encouraging.