Who pays tax?
Do people understand who has to pay income tax, and how much?
Who pays tax?
In the lead up to the 2017 general election we looked at one of the biggest issues in any campaign: tax. Income tax produces 25 percent of all the Government鈥檚 tax revenues.
But do people understand who has to pay income tax, and how much?
The country in 100 people
Imagine the entire British population represented by 100 people. Now picture them lined up from the lowest income to highest income.
As you walk along the line from the low-income end, the first 40 people aren鈥檛 paying any income tax at all. These people may be unemployed, students, or pensioners. Or perhaps they have a job but it doesn鈥檛 pay them the income tax threshold: 拢11,500.
The next 50 people will be paying the basic 20p rate of tax, which means they earn up to 拢45,000 a year.
Only 10 people in the line pay the higher 40p rate 鈥� although some of them, because weirdness in the tax system, are actually paying a marginal rate of 60p on each extra pound.
Finally we get to the richest person in the room. This person represents the top one per cent and they will be paying the top rate of tax: 45p in the pound. That applies to incomes of more than 拢150,000 a year.
How is the income tax bill split between these 100 people?
For every pound paid in income tax, 90p will be paid by the richest 30 people in the room. 27p of that will be paid by the person paying the very highest rate of tax.
This means that higher income rate tax payers pay a lot into the system 鈥� both due to having higher tax rates, and a higher income in the first place.
One of Labour鈥檚 key policies suggested that introducing a new 50p rate of tax for the highest earners and lowering the 45p band down to those who earn 拢80,000 would raise an extra 4.5 billion for the treasury.
Helen Miller from the Institute for Fiscal Studies says this is optimistic, because many would be likely to respond to the change in law by reducing their taxable income.
They might do this by paying more into a pension; reducing their workload; retiring or spending more time evading or avoiding paying tax.
She puts the figure which could be raised through this policy at closer to 拢2.5 billion.
