If you've followed me for a while you've probably heard me bang on abt how contrary to what everyone seems to assume inequality in the UK is NOT rising but FALLING. See chart: It rose a lot in the 80s but it's been falling ever since. But what if it's not as simple as that...? 🧵 
Because there is a problem with our inequality statistics. They are based on surveys, and in those surveys the very richest tend to lowball their incomes. The @ONS attempts to adjust for that by adding data from income tax. Which makes a bit of a difference. But...
Income tax is only one prism thru which we see how much people make each year. What abt the money ppl earn tax free on ISA investments (these days ppl have a whopping £600bn in ISAs)? What abt earnings on other investments? None of this shows up in that inequality chart above(!)
Consider what we know from the capital gains tax data. In the latest yr (17/18), this is the distribution of how much money people made on their investments (as reported to HMRC). Some £33.7bn was shared by only 9,000 people, which is about £3.7m each. In a single year...
Nothing wrong with people making lots of money. But what's striking is that these earnings don't show up ANYWHERE in the official inequality numbers. So there's a good chance the official numbers are understating the wealth of the top 1%, or perhaps 0.1%.
So it's quite possible UK inequality is WIDER than we currently think. Happily some researchers inc @Summers_AD are working on a project with HMRC data to try to bring together these other tax figs and work out the real story of UK inequality - esp the earnings of the super-rich
Their findings are unlikely to change the overall gini numbers enormously but perhaps they will prompt us to think deeper abt the way we design policy. We currently tax employment income at far higher rates than gains from assets. Is that right? Maybe, but consider this:
Avg tax rate paid by these 9,000 people on their £33.7bn gains was 15%. Lower than the basic rate of income tax! Some ppl just made a LOT of money and paid a lower rate of tax on it than their cleaners pay on earnings. How so? After all, the top CGT rate is 28%. Well...
The answer is "Entrepreneur's Relief" which allows them to pay a rate of just 10%. This started as a way of helping small business owners but eligibility rules became so loose that over the past 7yrs more than HALF of all CGT gains paid this 10% rate rather than the full rate
We shouldn't discourage investors/entrepreneurs. We shouldn't double tax if we can avoid it. Yet it's hard to escape notion that some features of tax system are unfair, allowing the rich to pay even less tax. Former HMRC head seems to agree...
My @thetimes column this week considers whether inequality is actually higher than the official numbers suggest. And what lessons are there for our tax system? thetimes.co.uk/article/room-t…
