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UK’s top 1% of earners pay over third of all income tax

The top 1 per cent of UK earners pay more than a third of all income tax, making the public finances vulnerable to changes in their incomes or behavior.

UK’s top 1% of earners pay over third of all income tax
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The UK has become increasingly reliant for its tax revenues on a small number of high-income individuals, following regulatory changes that have seen just under half the population exempt from making payments, the Institute for Fiscal Studies said.

According to the think tank, only 58 per cent of adults are liable for income tax and the top 1 per cent of those who do pay income tax have seen their share of total income tax payments rise from 25 per cent in 2007-08 to 30 now.

“Unlike the increases in previous decades, this has not been driven by a rising income share at the top,” the IFS said.

“Rather, it reflects policy reforms: there have been income tax rises for high-income individuals (the additional rate of income tax above £150,000, the withdrawal of the personal allowance above £100,000, substantial cuts in income tax relief for pension contributions, and a net real reduction in the higher-rate threshold) even while increases in the personal allowance have reduced or eliminated income tax for those with lower incomes.”

The think tank explained that before taxes and benefits, the highest-income 20 per cent of individuals have an average household income that is 12 times as high as the poorest fifth. Adding all cash benefits and deducting the main direct personal taxes (income tax, employee and employer NICs and council tax) brings this figure down to five. Benefits account for around 80 per cent of this reduction, while direct taxes account for 20 per cent.

IFS added that overall the UK tax take is at its highest sustained level since the 1940s, standing at 34.4 per cent of national income.

Policy reforms since 2010 have increased tax revenue by about £20 billion overall – despite large giveaways increasing the income tax personal allowance, cutting the headline rate of corporation tax and freezing fuel duties.

However, despite these figures, taxes in the UK remain below average for the G7 nations and lower than in most of western Europe.  

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