I posted this video on YouTube this morning:

The transcript is as follows:

Proper on the very coronary heart of the Taxing Wealth Report is the thought of tax justice. 

Equity issues in the case of taxation. Folks ought to be handled equally when they’re in equal conditions, and people who find themselves rich ought to contribute extra to society than those that have much less revenue and wealth. These concepts are completely basic to the ideas of tax justice, and they’re basic to the concepts throughout the Taxing Wealth Report.

Let me clarify these in somewhat extra element.  Once we’re speaking about individuals in an identical state of affairs within the sense that they’ve the identical total stage of revenue then we’re discussing horizontal tax fairness once we talk about their tax affairs.  It ought to, in my view, be the case that regardless of the supply of an individual’s revenue they need to pay the identical quantity of tax.

In different phrases, if an individual earns their revenue from working, or in the event that they get their revenue from hire or dividends or curiosity, or in the event that they make their revenue from capital positive aspects, that are the income that folks make on the sale of belongings, they need to nonetheless pay the identical quantity of tax, no matter that supply could be.

That’s not what occurs within the UK at current. We’re a really great distance, in truth, from that occuring right here within the UK. That is due to the allowances and reliefs and exemptions which are throughout the tax system imply that those that work for a residing pay essentially the most tax on their revenue and that those that dwell off capital positive aspects, that’s, the rich who can promote belongings to grasp cash on which they’ll then dwell, pay the least quantity of tax.

We noticed that very vividly in 2024 when Rishi Sunak printed his tax return for the 12 months 2022/23 and his total price of tax was simply  22% or so. If the suggestions within the Taxing Wealth Report had been in place and had been utilized to his tax return, he would have paid tax at effectively over 50%.  Now, let me clarify why these inequalities come up, very briefly, and why the Taxing Wealth Report tackles them. 

The inequalities are fairly straightforward to clarify. Capital positive aspects tax is charged at roughly half the speed of revenue tax, and that is ridiculous. There is no such thing as a cause why an individual who makes cash from profiteering ought to pay tax at half the speed of someone who has to work for a residing. That is loopy. It is mistaken. 

However there’s one other bias throughout the tax system which closely favours these with wealth. And that’s that revenue from curiosity and from dividends and from rents solely ends in the fee of revenue tax.  However when an individual works for a residing, in addition they pay nationwide insurance coverage. Actually, not solely do they pay nationwide insurance coverage, however their employer pays nationwide insurance coverage as effectively, at a a lot greater price than the worker does now.

So, the consequence is that earnings from employment are rather more closely taxed than anything. So, within the Taxing Wealth Report, I like to recommend that the speed of tax paid on capital positive aspects ought to be the revenue tax price, and I recommend that revenue from rents and dividends and curiosity and capital positive aspects ought to all be topic to what’s known as an funding revenue surcharge.

That’s an additional tax equal to nationwide insurance coverage at an approximate price which mixes each the worker’s contribution and the employer’s contribution, in order that the one who will get revenue from these sources has to additionally makes a good contribution to the general prices of operating our society, and makes a good contribution to the way in which by which the federal government should function if we’re all to dwell in an acceptable style.

That’s the solution to create horizontal tax fairness. And there is one different change as effectively. And that’s, that folks within the UK ought to all get tax allowances on the similar price. So, individuals who make a contribution to their pension ought to get tax aid on the primary price of revenue tax, I recommend, no matter their total stage of revenue. That signifies that the 85 % of the UK who solely pay the fundamental price of revenue tax ought to get the identical price of tax aid as an individual who earns one million kilos. Pension contributions ought to solely get tax aid at this decrease price, as ought to donations to charity additionally solely get tax aid at that price, as a result of it’s very unfair that the rich are backed in the case of their donations to charity or their contributions to their pension fund in a means that these on decrease incomes should not. These allowances create bias. That is unreasonable as a result of it destroys horizontal tax fairness. 

Then there’s the idea of vertical tax fairness.  Vertical tax fairness signifies that we must always have a progressive tax system. It is fairly easy. These on low revenue clearly ought to be taxed lower than these on excessive revenue. And the financial logic is kind of simple.

In the event you pay an individual on low revenue, an extra pound, they’ll worth it rather more than in the event you pay an extra pound to someone who earns 100 thousand a 12 months or one million kilos a 12 months. I feel that is fairly apparent. The individual on low revenue will truly discover the distinction. The individual on excessive revenue frankly simply will not care whether or not they’ve acquired an additional pound or not.

Due to this fact, the individual on a excessive revenue can afford to provide away extra of their revenue to pay tax and nonetheless be comparatively as effectively off and undergo no extra hurt to their financial well-being than the individual on low revenue, who ought to pay a lot much less tax as a result of the relative value to them of tax paid is way greater given that each pound is value much more to them.

Now once more, it is a primary idea of equity. However we do not have such a system within the UK at current. Actually, those that are on the bottom incomes within the UK pay the very best total charges of tax.  And proper throughout the center bands of revenue, the speed of tax is just about flat. There’s little or no distinction within the total price of tax paid by people who find themselves incomes £25,000 a 12 months and individuals are incomes £60,000 a 12 months.

However in the case of the very best charges of revenue, once we think about total will increase in monetary wellbeing in a 12 months, which mixes their capital positive aspects with their incomes to take a look at how a lot their total wealth has elevated – which is a completely honest factor to do in accounting phrases – then they pay a lot decrease charges of tax than anyone else within the nation as an entire.

Actually, if these on the bottom ranges of revenue pay round 44% of their revenue in tax – not revenue tax by the way in which, however taxes like VAT or the BBC license payment or council tax and so forth –   and once we examine their state of affairs of paying this extraordinary price of tax of 44% to the state of affairs of those that are on the very best ranges of revenue, they solely pay simply over 20%, as we noticed Rishi Sunak do. His total price of tax was simply over 22%.  Now, what which means is that now we have a very regressive tax system within the UK. In different phrases, the system works precisely the other means from that which it ought to if we have been to ship tax justice, and actual equity.

We’ve got vertical inequity quite than vertical tax fairness.  The Taxing Wealth Report recognises that, and it tackles these points as a result of it says all people ought to make their contribution to society in a good means. We aren’t doing that. The Taxing Wealth Report principally tries to knock off the tough edges throughout the tax system, which creates this unfairness and bias in the direction of wealth, and seeks to revive a state of affairs the place the tax system is biased in the direction of the individual on unusual ranges of revenue.

That is most individuals within the UK, after all. I am not being disparaging by saying unusual. I simply imply common.  And the bias within the tax system ought to be of their favour, not in favour of wealth. That is what the Taxing Wealth Report tries to attain with the suggestions it makes. And I feel because of this, it represents equity, it represents tax justice, and it represents what a authorities within the honest therapy of individuals on this nation ought to be doing.