UK urged to reform tax system that favors top 1% earners

The UK’s tax system continues to favor the 500,000 highest-income earners and needs to be reformed, according to the Institute for Fiscal Studies.

The influential think tank said in a report Thursday that the top 1% enjoy “preferential” rates over wage earners because they get more of their income from lower-tax sources.

For the top 1%, a fifth of their income comes from self-employment or their own business, the IFS said. For the top 0.1%, a group of only 50,000 people, the figure comes to 30%.

This means that deep inequalities persist, despite the rise in taxes on the rich since the financial crisis. The IFS said there is now a case for harmonizing tax rates across all sources to address the “unfair” shift of income, along with reforming the tax base so that higher taxes on profits, dividends and capital gains do not discourage self-employment investment.

The report, part of the IFS Deaton Inequality Review launched in 2019, comes amid a growing focus on the richest and how much they pay in taxes as Britain prepares for a severe cost-of-living crisis that will hit the poorest of the poor.

“The current design of the tax system, including the way different forms of income are taxed at different tax rates, is unfair and inefficient, penalizing employees and distorting investment decisions, to the detriment of social welfare,” Alex said. D., director of the wellness program at the Nuffield Foundation, which funds the review.

The analysis also found that:

1% of high-income adults earning more than £130,000 ($170,000)
The top -0.1% had incomes greater than £500,000 and represented 6% of total income.
– 55% of the top 1% live in London and the South East of England, and only 20% are women compared to 15% in 2003-2004
Within the top 1% the average tax rate for wage earners was 49%. This compares to 42% of freelancers and 45% of business owners and managers. Business owner managers can access a rate of just 27% on up to £1 million of retained earnings in their businesses
The share of after-tax income earned by the top 1% fell from 14% in 2009-10 to 11% in 2018-2019