United Kingdom rates of personal taxation are at their highest in over 70 years. They are set to increase further.
Whether or not governments spend the money they raise wisely? That's another piece for another day but my overarching view is that individuals make better spending choices than "the state".
This article examines the ways in which the Treasury raises money for government spending through taxation. No surprises: just under 90% of tax revenue is paid by individuals.
There are a raft of "de minimis" taxes that have not been included. Again, no surprises: the UK's tax system is convoluted.Personal Taxation Income Tax – around 30% of all tax raised
Income tax was first implemented in the United Kingdom by William Pitt the Younger in his budget of December 1798 to pay for weapons and equipment in preparation for the Napoleonic Wars. It was meant to be a "temporary" measure for a specific purpose. 223 years on, it is still with us.
From April, personal allowances (the amount of money each of us can earn before being taxed), have been frozen by the Chancellor. As inflation has not been frozen, in real terms, all workers will be worse off.National Insurance – around 19% of all tax raised
National Insurance has historically been used to fund state pensions and other specific "events based" situations such as jobseeker's allowance, maternity allowance and bereavement support.
From 1st April, in breach of their 2019 manifesto, the government is increasing National Insurance by 1.25% to fund additional spending. Whilst this is principally for the NHS (which accounts for 40% of all government spending (over £3Bn a week)), assuming there is any money left over, it will go towards funding social care.Value Added Tax ("VAT") – around 18% of all tax raised
If ever a tax was misnomered, it is VAT. This is a tax on purchases. It applies to pretty much everything we purchase and is the largest of the "stealth" taxes by quite some distance.
Leaving the EU means we have absolute discretion over what items to exempt from VAT. Energy bills would seem a good place to start.Fuel Duty and Vehicle Excise Duty – around 5% of all tax raised
Fuel duty amounts to £0.58 per litre on petrol and diesel. VAT is also levied at 20% so with a litre of fuel at £1.75, tax accounts for 50% of the cost of each litre.
The government has frozen fuel duty for 11 consecutive years.Council Tax – around 4.5% of all tax raised
Council Tax is each household's direct contribution to local government spending. Each authority is given a limit that central government will allow them to increase bills by annually. The days of bills reducing are well behind us.
The government has proposed a £150 reduction in Council Tax bills for the forthcoming year for those in bands A to D, to help mitigate rising energy costs.Sin Taxes – around 4% of all tax raised
A sin tax is an excise duty specifically levied on certain goods deemed harmful to society and individuals, such as alcohol, tobacco, drugs, sweets, soft drinks, fast foods, coffee, sugar, gambling and pornography.Capital Gains Tax – around 3% of all tax raised
Capital Gains Tax is a charge applied to the gain from the sale of something you own. It is calculated from the gain made, the increase in value of the sale price compared to the purchase price, for an asset held for more than one year.
Typically it's applicable to:
- Investment funds;
- Second properties;
- Inherited properties;
- The sale of a business;
- Valuables including art, jewellery, and antiques;
- Assets transferred at below their market value.
This may seem like a modest amount (around £325 per household) to raise around £9Bn for the Treasury. However, with energy bills soaring and the renewable energy sector maturing, it is increasingly difficult to argue for public funding without guaranteed increases in energy capacity and overall reduced energy bills in the short term.
This is a logical tax to scrap and one that would command widespread public support.Business Taxes Corporation Tax – around 5% of all tax raised
Corporation Tax is levied on companies' profits. The rate of Corporation Tax had been falling under the Tories since 2010, to a low of 19% but is now increasing again with a target of 26% the long-term objective.
In contrast, Ireland has a Corporation Tax rate of 15%.Business Rates – around 4.5% of all tax raised
Business rates are levied based on the rateable value of non-domestic property. They are effectively a "Council Tax" for business.North Sea – around 1% of all tax raised
Companies operating in the North Sea pay three separate profit-based taxes on oil and gas production: corporation tax, petroleum revenue tax (PRT), and a supplementary charge.
Given the crisis in energy security exacerbated by the Russian invasion of Ukraine, with new drilling licences already granted and more potentially to come, it is likely that revenue from this form of taxation will increase in the coming years.