‘UK governments are dressed-up in the garbs of democracy, but continue to privilege the interests of wealthy elites and footloose capital.
In 1863, US President Abraham Lincoln visualised democracy as a “government of the people, by the people, for the people”. Some 160 years later, that dream remains unfulfilled.
UK governments are dressed-up in the garbs of democracy, but continue to privilege the interests of wealthy elites and footloose capital. Occasionally, a few concessions are made to the masses to legitimise the illusion, but they can always be withdrawn as shown by cuts in Universal Credit and suspension of the triple-lock on the state pension.
Taxation policies provide a window for examining the direction of the state and whether it is ‘of the people [and] for the people’. This week, it came to light that Chancellor Rishi Sunak’s wife enjoyed non-dom status for tax purposes enabling her to avoid at least £2.1m in UK taxes whilst her husband wrote the tax rules. Health Secretary Sajid Javid said that he too held non-dom status before pursuing a career in politics.
The non-dom tax regime was first introduced in 1799 to enable British colonialists to shelter foreign property from taxes. Today, the perk is available to wealthy elites who live in the UK but claim to have permanent residence (domicile) abroad.
Ordinary Brits pay tax on their worldwide income and gains, but this rule does not apply to non-doms. All non-dom status holders are required to pay income tax on their UK earnings, but avoid income tax and capital gains tax on assets held elsewhere as long as the amounts are not remitted to the UK. This is known as the “remittance basis” of taxation. Non-doms also enjoy valuable inheritance tax, business investment relief and other tax reliefs. Non-dom status is part of a complex offshore and onshore web of tax avoidance.
Non-dom status has no statutory definition and has to be negotiated with HMRC. To secure the ‘remittance basis’ of taxation, an annual charge of £30,000 is payable by individuals residing in the UK for more than 7 out of the past 9 years. This rises to £60,000 for individuals resident in the UK for more than 12 years out of past 14 years. The maximum duration of non-dom status is 15 years. In recent years HMRC has targeted a number of non-doms for suspected tax avoidance.
In 2020, some 75,700 wealthy individuals secured non-dom status and paid no UK tax on their offshore income. Recent research shows that four out of ten individuals earning around £5 million or more claimed non-dom status, compared with less than three in one thousand among those earning less than £100,000. Biggest beneficiaries are concentrated in banking, oil, auto, sports and film industries and 58% of the non-dom taxpayers are based in London.
The government says that non-doms paid £7,853 million in income tax, capital gains tax and national insurance contributions. However, it is silent on what amounts would have been payable if non-doms were taxed on the same basis as ordinary people. No information is provided about the taxes avoided by non-doms.
The government also claims that in 2019, £1,031 million was invested in the UK by non-doms. However, it does not explain whether the investment is in productive assets, or used for speculation which creates bubbles in commodities, securities and property markets. The investment can also be illusory in that it is being used to exploit tax advantages. In any case, the investment can be made independent of the non-dom tax perks.
Such is the state of democracy in the UK that 75,700 footloose ultra-rich people enjoy all the benefits of social infrastructure but are not liable to taxes on the same basis as normal people even when they have lived in the UK for 14 years. Last week, the Finance Act 2022 handed more tax perks to non-doms through its Qualifying Asset Holding Companies regime. At the same time, the government increased income tax and national insurance contributions which would force 27 million people to pay more.
The interests of the rich are embedded in tax legislation elsewhere too. For example, capital gains and dividends, mostly accruing to the rich, are taxed at marginal rates in the range of 10%-28%, and 8.75% to 39.35% respectively, compared to 20%-45% on earned income. Recipients of capital gains do not pay any national insurance. National insurance at the rate of 13.25% is levied on annual earned income between £12,570 and £50,300, but only 3.25% is levied on incomes above £50,300.
The net result of various tax policies is that the poorest 10% of households pay 47.6% of their income in direct and indirect taxes, compared to 33.5% by the richest 10% of the households. Inevitably, poverty is inflicted on the masses. Even before the pandemic 14.5 million people, including 4.3 million children, lived below the poverty line and there is ever increasing reliance upon foodbanks.
No “government of the people, by the people, for the people” could ever be compatible with this treatment of the masses. The ultimate aim of democracy is to enable people to live fulfilling lives and that won’t be achieved without fundamental changes to the political system.
This article was first published in Left Foot Forward. Here is its request for funding.
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Prem Sikka is an Emeritus Professor of Accounting at the University of Essex and the University of Sheffield, a Labour member of the House of Lords, and Contributing Editor at Left Foot Forward.
Prof Prem Sikka: Tax legislation in the UK benefits the interests of the rich – Left Foot Forward: Leading the UK’s progressive debate
We live in a country that is run by the elite and for the elite and the supposed elite have little or zero regard for the plight of the millions of people living at or close to the breadline. Capital gains taxes and dividend income tax rates are supposedly there to reward entrepreneurial behaviour and encourage investment. The argument for not raising these taxes and rates is that the higher you make the tax rates the harder it is to collect it, and also that people with money will leave the UK, and entrepreneurs will set up elsewhere. And enough ordinary people fall for this argument as though it is irrefutable. And when we look abroad this story is pretty much the same anywhere in the “developed” world. And as all of the power and the vast majority of old and new media outlets are held and controlled by the same people, this inequal society is becoming less and less equal. I certainly do not want equality, I do not want people who do nothing to get the same as people who strive for excellence. I want people with talent and flair and great ideas to be rewarded and to benefit from their attributes. But I do not want them to benefit by so much more than the people who work for them, the people who buy their products and services. Wouldn’t it be nice if people who receive millions from their efforts actually developed a genuine social conscience and supported the idea for either maximum incomes and assets held by any one person or family, or for much higher tax rates? Why are such people so against having less for themselves and their families (who may themselves have no discernible talents) and instead not committed to allowing general society to benefit more from their entrepreneurial talent. And of course, it is not particularly talented to own land is it? Its not particularly talented to live off inherited wealth is it? What use is a bigger GDP if the distribution of wealth is so incredibly unequal as to leave millions (and it is literally millions) unable to pay their heating and food bills without falling into debt? Rant rant rant.
24 million U.K. employees pay zero income tax. QE always pushes up asset prices those with assets benefit at the expense of those that don’t. Since only 6% obtain financial advice the majority only wake up to their problem when it is too late to take corrective action. The passing of the reserve currency to China is the next wave of the repeating cycle
I question your figure of 24 million employees paying zero income tax. But if it is accurate then how much more evidence is needed of the inequality if 24 million don’t earn enough to.pay income tax?
Maybe the U.K. treasury could take some of the £103,738 of annual tax received per non Dom ( excluding the VAT they pay) to subsidise this authors failing blog. The publication will have its way soon enough as many non doms, many who created employment in the U.K., are leaving a failing U.K. economy which is struggling to cling to memories of past empire.
The IFS gave the figures https://ifs.org.uk/bns/bn09.pdf
“Of a UK adult population of around 53.2 million, it is estimated that there will be 30.1 million income tax payers in 2016–17. Around 4.4 million of these will pay tax at the higher rate (but not the additional rate), providing 38.5% of total income tax revenue, and 333,000 taxpayers will pay tax at the additional rate, providing 28.0% of total income tax”
Institute for Fiscal Studies, 2016
Thank you John. That is 24 million adults not 24 million employees. Hence my point. However it still highlights the inequality in our society very well.