How Rich is Rich?
by John Humphrys in Commentary and Editor's picks
Wed September 26, 8:59 a.m. BST
John Humphrys asks: Should the rich pay more tax? And who are “the rich”?
Party conferences come and go and most of what is said goes in one ear and out of the other in less time than it takes the delegates to pack their suitcases. But not all of it. And it’s a fair bet that what was said about taxes and wealth at the Liberal Democrats’ conference in Brighton will be on the agenda of both the other big party conferences and even dominate the political agenda at least until the next election. At the heart of it are two simple questions. Should the rich pay more tax? And who are “the rich”?
The first and most obvious thing to say is that if this country is to balance the books – or at least significantly reduce the amount we owe our creditors – we will have to raise more cash. There is another approach: cutting spending. But the coalition has been trying to do that for the past couple of years and making precious little progress. The highly respected Institute or Fiscal Studies reckons that, as of last April, only one-fifth of the reductions in spending that had been promised had actually been realised. And that was the “easy” fifth. If more savings are to be made, then many more public sector jobs will have to go. The problem is, of course, that if the people who are made redundant cannot find new jobs they no longer contribute anything in taxes and may end up claiming benefits.
So, like any household or business, if the government can’t cut spending enough to make a real difference it has to try to increase its income. And most of a government’s income comes from taxes.
There is, of course, a problem here – or, rather, several million little problems. They’re called voters. We may all accept the need to pay our fair share of taxes to keep the country running, but where the problem comes is defining what ”fair” actually means in this context. The leadership of the Lib Dems seemed to have no problem with it when they were at the seaside. Indeed, they’ve been using the word for a very long time in relation to their policies on taxation. Nick Clegg speaks, it seems, for most of his party when he says: ”You have to ask people at the top to make a [further] contribution.”
By “the top” he means the top ten per cent of earners. In subsequent interviews he was a bit reluctant to spell out precisely how rich they would need to be to qualify but the Daily Mail - always anxious to give the Lib Dems a helping hand – did some number crunching of their own. They calculated that there are about three million people earning more than £50,500 a year and that puts them in the top ten per cent. Other studies suggest the figure is not much more than £47,500. When Mr Clegg was pressed by my colleague Sarah Montague on Today he was a little vague but suggested he was thinking of a figure more in the region of £60,000 a year, or even £70,000 or £80,000.
Earnings are, of course, only one measure of wealth; the other is what you own. The Lib Dems have long been in favour of what they call a mansion tax, which would hit people with homes worth over £2m. Their coalition partners in the Tory party won’t have that, but they do intend to target people with homes worth £1m or more. Instead of hitting them with new taxes, though, there is to be a so-called “affluence” unit made up of an extra 100 HMRC inspectors who would check up on them to make sure they’re paying what they owe. The unit was originally set up to target those worth more than £2.5m – roughly 300,000 of them. The new, lower limit would drag an extra 500,000 into the net. The presumption seems to be that anyone with a £1m house may very well be dodging taxes in one way or another. Whether “dodging” is the right word to use is arguable. It implies dishonesty and clearly many people use perfectly legal means to reduce their tax bill. But that’s a debate for another day.
Our question for this debate is how rich is rich. If you fit into any of the categories I’ve outlined you are considered by the Liberal Democrats to be wealthy and should expect to be paying more in tax than you pay at the moment. As Mr Clegg put it to Andrew Marr: “I don’t think you can ask people on middle and low incomes who, after all, are the vast majority of the British population, to bear the brunt of this adjustment. “ He points out that the average family income is about £27,000 a year and also that, as a directly result of Lib Dem pressure, many of the lowest paid have been taken out of tax altogether.
But his opponents in this area say it is simplistic or even plain wrong to describe someone earning around £50,000 a year as rich. Many head teachers and senior nurses earn at least that amount and so do fairly senior police officers and army officers. They also point to the way the cost of living has risen over the past few years: higher taxes and National Insurance; council tax; VAT; the cost of heating your home and filling your tank with petrol. And so on.
And as for people who own homes worth £1m, they point out that in many areas of London it’s difficult these days to buy a fairly modest semi for less than that. And then there are older people whose house have increased in value but who are relatively poor in every other respect.
So what’s your view of all this?
- What do you think is “rich”. Are you? And if so, when did you start feeling rich... assuming, of course, you haven’t won the National Lottery!
- Maybe it was when the kids finally left home or you came into a legacy or you finally got that big promotion.
- Or maybe you’re self-employed or run your own business.
- And if you are not rich, do you think of yourself as poor or one of the so-called “squeezed” middle class?
- How much extra do you think you would need to earn to consider yourself at least relatively wealthy?
- And if you are in the upper ten per cent do you agree with Nick Clegg that you should share more of the burden of getting Britain out of this hole than you do at the moment?
- Or do you think you already pay more than enough taxes already and you’re damned if you’ll pay a penny more than you have to?