Why is Rishi paying the same taxes as a nurse?

We all know that we’re in a cost of living crisis. Bills are skyrocketing and the price of food is climbing steeply. However, we’re not all in this together. Since the start of the pandemic the wealth of those at the top has increased dramatically, while the average person has seen their income flatline. 

The very different experience of those with significant assets is also reflected in how they are treated by the tax system. The tax system is designed - quite legally - to allow wealthy people to pay lower rates of tax than ordinary people.

It’s a fact that was vividly illustrated this week when the Prime Minister, Rishi Sunak, released details of his tax bill.

Sunak raked in £2 million in 2021/22 – mostly from dividends and capital gains. He paid £432,000 in tax on his earnings. 

Now, undoubtedly this is a large tax bill, but it amounts to an effective tax rate on all his income of just 22 per cent. The Prime Minister is a very (very) wealthy man, but he’s paying tax rates that are roughly the same as the average nurse earning £37,000.

The Labour leader, Keir Starmer, also released his tax returns. His effective tax rate is much higher than the Prime Minister’s, at 32%. This is largely because he earns the bulk of his income from work, and so is part of the PAYE public, like most of the rest of us. 

If you ask ordinary people about the taxes that the wealthy pay, most assume that the super rich like the Prime Minister pay tax at the higher income tax rate of 45 per cent. 

I reckon most people would be surprised, and not a little angry, that the very wealthy don’t pay anything like this headline rate. 

The very fact this is legal shows our tax system is broken

The thousands of NHS workers who are using foodbanks will find it incredible that  the prime minister who refused them a fair pay rise is  paying such a low effective tax rate. Yet it’s entirely legal. 

And precisely because it’s entirely legal, shows what is wrong with our tax system: the super rich, like Rishi Sunak, take most of their income from wealth, not work. That’s because the bulk of their earnings come from the increasing value of theirs financial investments, such as stocks and shares. Taxes on these sorts of “capital gains” are taxed at a much lower rate than income from work. 

This is unfair and ridiculous, whichever standard you apply. Income should be taxed the same across the board, whether it’s income from work or unearned income from things like investments, shares, or buying and selling rare cars, art or wine. 

If this were the case, Rishi Sunak’s tax rate would be much higher. And if  we applied the same rules to every other super rich person in the UK, we’d raise up to £14 billion pounds - every year. 

However, considering the scope of inequality that’s been allowed to fester in the UK, this is not enough to even things out.  The UK’s recent economic history has produced some perverse outcomes. Most notably, whenever an economic crisis occurs, the wealthy often end up better off and the poor end up poorer.

This is the story that played out after the recession in 2009/10 and during the covid pandemic.The wealth of the super rich, in particular, has boomed compared to the rest of us. 

So with this in mind,  it would be fair if people with more than £10 million in assets paid an additional, annual two per cent tax on that wealth. Such a tax would raise up to £22 billion to help us rebuild public services like the NHS.

It’s not just us at Tax Justice UK who think this way:  we’ve been tracking public opinion on this issue since 2019. A recent poll from YouGov found up to 74% of the public agree with the idea of a wealth tax. Even wealthy people themselves seem to be on board. A poll of 500 wealthy people carried out by Survation on behalf of the Patriotic Millionaires UK, found that 68% of those with over £1 million to invest support the idea of a wealth tax too.

But if this isn’t enough to convince Rishi Sunak, there is a more palatable political precedent that could help him get on board with us: Margaret Thatcher’s government equalised the tax rates on income from work and income from wealth back in 1988.

The public, including wealthy people themselves, back wealth tax reforms and there are even solid Conservative Party precedents for our Prime Minister to change course. The current rules have been written in such a way that the super rich can pay lower rates of tax like this. These rules can be changed, and the laws can and should be rewritten.