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Welfare for the wealthy
The wealthy pay less in tax as a portion of their wealth compared to most of society. They also benefit from government backed bailouts and handouts.
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The reason essential public services like schools, councils and the NHS are so underfunded is because those with the most don't need to pay their fair share.
Not paying what they owe. How the rich avoid tax
If you look at the list of the UK’s richest people and a list of the top taxpayers in the UK, there is almost no crossover.
Making money differently
The super wealthy don’t make their money the same way we do. They don’t have traditional incomes, i.e., they don’t sell their time for money. Instead, they typically have inherited it or it is made through passive income such as rental income or share dividends. This difference in how they make money means it is easier for them to avoid paying their fair share of taxes, at the same rate and as the same portion of their income as the rest of us.
Capital Gains Tax
Capital Gains Tax is a tax paid on the profit (or "gain") when you sell something that’s increased in value.
For example, if you bought shares in a company for £100,000 and sold them later for £250,000, you'll pay tax on the £150,000 gain.
This type of income is not taxed anywhere nearly as highly as an income on a salary. This means that people who are already wealthy, and have had the ability to invest in assets, can earn an income by buying and selling them.
Some also get paid in this way to pay less tax. Rather than registering as a PAYE employee, you could get your employer to pay your salary into a company, and then take the money out of said company as dividends. For example: if you earn £1 million per year as an employee through PAYE, you'd pay tax at the 47% rate. But if you get paid through a company you own and manage, you can take the money as a capital gain, and only pay 10% tax.
Inheritance Tax
Inheritance Tax is fairly self explanatory: tax you pay on assets you gain when someone who dies leaves them to you in their will, over £1 million. It is hard to know how much wealth is inherited because the super-rich have ways of hiding it.
If you know what you are doing, inheritance tax can be optional.
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In 2016, the Duke of Westminster inherited a £9 billion property empire when his dad died. He did not need to pay the typical 40% tax because the properties were in a trust managed by his dad, rather than directly owned by him.
This obviously is not a tactic used exclusively by Dukes, it is the main way the super-wealthy can keep their wealth intact.
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Despite these loopholes, in 2023, there were rumours that the Government wanted to scrap inheritance tax. This would benefit wealthiest 1% the most because they would get half of the total savings.
In a society where the poorest are worst impacted due to lack of public finances, it seems strange to want to reduce tax income for a policy in which the wealthiest (who haven't found ways to hide their money as previously discussed) benefit the most. Only 4% of deaths being currently taxed due to the £1 million threshold. Additionally, a main argument of lower taxes is to reward hard work. But the concept of inheritance is the opposite of this philosophy. The idea of scrapping inheritance tax is an example of the Government's desire to protect the wealthy at the expense of all others, even when it goes against their supposed principles.
National Insurance Exemption
National Insurance Contributions (NICs) are only paid by working age people, from their income through working. You don’t need to pay NICs if your income comes from investments such as
dividends from shares, rent from property and interest on savings
Paying to say you don't live in the UK (Non-dom status)
It is possible to pay £30,000 per year to the HMRC to say that you do not live in the UK, which if you’re extremely wealthy, will reduce your tax bill significantly as you'll no longer need to pay tax on foreign earnings.
This strategy has even been used by politicians. Sajid Javid used to be a non-dom, as well as former Prime Minister Rishi Sunak’s wife.
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The Labour Government has declared that they will scrap this loophole. Current users are apparently "petrified" at the thought of paying the same rate of tax as the rest of the country.
Off-Shoring Wealth
Unlike the majority of us, whose money is kept in this country, the super rich have expensive accountants who show them how to hide money in other countries to pay less tax. Off-shoring is bad for an economy because it takes money out of circulation.
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As of 2019, it was estimated that UK residents had £850bn in financial accounts overseas, of which £570bn was based in tax havens.
Corporation Tax
Corporation tax is what businesses pay out of their profits. In the UK, corporation tax is lower than almost all other developed countries. Rishi Sunak, when Chancellor admitted that lower corporation taxes did not affect investment.
When Rishi Sunak became Prime Minister, he increased the rate of corporation tax to 25%, but UK is still far from the highest in developed countries.
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Companies have ways to avoid paying corporation tax. Shell paid no tax in oil and gas production in 2021, despite a £14.7 billion profit.
The Lie: The rich already pay their fair share
It is argued that rich people already pay their fair share because the top 1% of earners paid 29% of income taxes in 2021/22.
But those who argue this are misrepresenting the facts. The above stat only accounts for income tax. The wealthiest have many other streams of incomes that the majority of people do not have, which as we've previously discussed, are taxed differently and often at a lower rate.
The wealthy, therefore, pay a far lower portion of their wealth in taxes than those who are not already very rich.
Tax evasion
The UK is the country most responsible for tax evasion: which totals more than a third of global tax avoidance each year, around £160,000,000,000. This includes the "spider's web" of UK overseas territories, such as the Cayman Islands. Around 40% if the world's dirty money is estimated to be laundered through London and the UK's crown dependencies.
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Of the £850 billion held overseas, £570 billion is in tax havens. The HMRC has no idea how much tax is properly declared.
Within the UK, The HMRC have reported that the amount of tax unpaid in 2022-23 was £39.8bn, which was a record high. This is called the "tax gap", i.e., money lost to non-payment, avoidance and fraud. Specifically, £5.5 billion was lost to evasion (14%) and £1.8 billion lost to avoidance (5%).
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The Money Laundering Act came into law in 2016, where registers of off-shore activity must be publicly available. However, the UK Government has yet to enforce these laws and there is therefore limited compliance.
There is evidence that increasing tax collection on the wealthiest is possible. Because banks now automatically share information, it is more difficult for the wealthiest to hide assets, slashing the amount of global GDP held in tax havens.
HMRC has investigated the owners of JCB, who are suspected of avoiding tax over 20 years through a “complex network of offshore tax havens and companies.”, potentially amassing a bill of £500 million.
More can be done to target tax avoiders and evaders. Currently there are not enough staff members to investigate and collect unpaid taxes: the HMRC has 6,000 fewer front line staff than 5 years ago. It seems obvious to invest more in this area, given that for every £1 the HMRC spends, they recover £18 in taxes.
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Comparatively, the Government's own figures indicate only £6.5 billion is paid in fraudulent benefit claims, although even this seems grossly overestimated. There is also no figures on how much money is spent investigating benefit fraud. So there is no direct comparison between how benefit cheats and tax cheats are treated by the Government.
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How the rich get money back
Subsidies
The UK is one of the most generous countries in the world to the fossil fuel industry. For every £1 oil and gas companies invest, they get 91p back from the taxpayer. From 2017-2022, fossil fuel industries received around £12 billion per year on average.
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Why is the UK taxpayer handing billions to fossil fuel giants who have in recent years been earning record-breaking profits? In 2023, OpenDemocracy found that the UK government handed more than £1 billion in permits to pollute the country
We also do not collect appropriate taxes for these mega profits. In 2022, Shell earned £8 billion in profit, but paid only £15 million in tax.​
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The taxpayer also heavily subsidises the rail industry- over £50 billion since 2016. This is supposedly to fill the hole left because they don't make enough money through ticket sales. Yet these companies hand millions to their shareholders. They are also paid for substandard service. Avanti West Coast received £6.5 million in 2022 for "exceptional performance", despite over half of trains being delayed in the year before and a record number of complaints.​ In leaked documents, Avanti West Coast even joked about this "free money" that's "too good to be true" acknowledging that they get this money even for substandard performance.
Working Tax Credits
These are paid directly to employees, but this subsidises the ultra wealthy in that they can get away with paying poverty wages, while the government has to make up for living standards through the benefit system.
Many people have jobs that cannot cover the living costs, therefore working is not the best way out of poverty.
Example: COVID Cash
During COVID, businesses benefited from government funding. While this was essential to keep many businesses running, it was also abused. It's estimated £4.5 billion was lost to COVID fraud, but only around 25%, £1.1 billion will ever be recovered by the HMRC. The other £3 billion+ has been written off.
Many big companies were still paying dividends to shareholders while taking government money during COVID, such as the rail industry.
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Furlough, or the "Covid job retention scheme", cost the UK tax payer £70 billion. But despite this apparent giveaway, the gap between rich and poor got even larger post-pandemic.
Bail Outs
When big businesses, like banks, become “too big to fail” they are bailed out by governments, i.e the taxpayer. Once these businesses become profitable again, they’re allowed to continue like nothing happened.
The 2008 financial crash was the fault of the banks, not the public. Yet it was the public's money, through taxes, that paid for it. Years later, we're still paying through austerity, while banks are back giving massive bonuses to their executives. Nobody went to jail.
Government austerity: taking from the poor to give to the rich
In the UK, from 2010 onwards, the Government pursued “austerity” which was slashing public spending to improve the country’s finances.
Austerity from 2010-2019 caused 330,000 excess deaths. It also did not bring the economic stability that the establishment promised it would.
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Lack of investment has consequences. On a personal level, a 2023 study has shown every £100 cut in social security causes a one month loss of life expectancy.
It makes a country more susceptible to worse outcomes if there are shocks to the economy, such as a pandemic.
As time has went on, the decision to pursue austerity looks like even more of a mistake, as the Financial Times has explained.
Austerity 2.0
"The definition of insanity is doing the same thing over and over again and expecting different results" (maybe) Albert Einstein
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According to the Office of Budget Responsibility (OBR), living standards in 2024-25 are lower than pre-pandemic. Over the same period, the richest 1% have tripled their wealth.
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But in the face of more financial instability, those that are already struggling are repeatedly forced to solve problems they did not cause. "Tough decisions" mean cutting public services. It never means making decisions that would affect politicians' own bank balances or that of their rich friends. This is true of both Labour and Conservative Governments.
In another performative attempt to look tough on benefit claimants, there has been discussion of new laws to spy on benefit and pension claimants bank accounts . The Government is pushing ahead with the Data Protection and Digital Information Bill which aims to spy on benefit claimants' bank accounts in an attempt to tackle "fraud".
Strangely, there has been no discussion of laws to put billionaires under the same surveillance, or those who we know make use of off-shore bank accounts.
What could they do instead? Alternatives to taking from the poor to give to the rich
Rather than cutting services, there are common sense ways that would raise billions in tax without cutting services. The Tax Justice blog outlines:
There is evidence that it is better for the economy to give money to those that actually need it, rather than the already rich and privileged.
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Austerity was carried out by the Conservatives while in Government. However, a Labour government have not committed to changing this strategy, and u-turned on many commitments to help people out of poverty. They have also promised they would not tax the wealthy. They claim this is because circumstances have changed, and that they are "pragmatic" and not ideological. But these decisions are closely ideologically aligned with billionaire and corporate interests, who have begun donating significantly to the Labour party.
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See the video below from the Tax Justice Network, explaining how Spain's Wealth Tax on the wealthiest 0.5% has been effective. It also gives examples which debunk the myth that the wealthy would move elsewhere.
