The London Evening Standard had a story back in 2007 which I’ve only just seen about a cleaner who pays 22% tax on her part time wages while the people who own the company she works for only pay 10%.  It’s old news but it’s pertinent in today’s climate of fierce jealousy of anyone rich and successful.

First things first, it’s possible to reduce your tax liability through legal avoidance but not to the extent where you pay no income tax.  If you earn a wage here you pay tax on it.  What counts as a taxable income can be bent but you can’t earn the sort of money that give you a £260m personal fortune without paying tax on it.  But let’s go with what the London Evening Standard says anyway.

In the case of this cleaner and the financiers behind the company she works for, she’s paid £225 per week and pays £26.58 per week income tax and National Insurance (NI).  Her evil capitalist employer pays £11.88 per week Employers NI.  That’s £1,382.16 per year that she pays in tax and £617.76 her employer pays in Employers NI for the privilege of giving her a job.

Assuming her evil capitalist scum employer avoids all his income tax liability (which is impossible) and he only pays 10% Capital Gains Tax (CGT) on his earnings, he would have to earn only £117,000 to pay the same amount of personal tax as the cleaner which isn’t a lot for a devil-worshipping evil capitalist fat cat is it?  And his company is paying for the privilege of employing her as well as paying tax on its profits.

In more general terms, there are calls every day from the left for rich people to “pay their fair share”, fair share being entirely undefined but more than what they pay now.  The fact that the top 5% of earners contribute something like a quarter of the UK’s tax income is lost on these people who are motivated by jealousy, not common sense.  But who contributes more to the Treasury?  One man earning £200k a year or 10 people earning £20k a year?

The 10 people earning £20k will all have a tax free income of £7,475 each, the person earning £200k will have no tax free income as it reduces by £1 for every £2 earned over £100k.  So that’s £149,500 of untaxed income for the 10 people earning £20k each.

The person earning £200k will pay income tax at 22% up to £35k, 40% up to £150k and 50% thereafter.  The people earning £20k will pay £4,038 each in tax and NI in a year which totals £80,760 in gross contributions to the Treasury.  Most of the people earning £20k will also be entitled to tax credits and someone taking £50 per week in tax credits will be receiving £2,600 per year back from the Treasury.

The person earning £200k will pay £82.959 in tax and NI on his income over a year and will get nothing back from the Treasury.  So one person earning £200k contributes more in direct taxation than 10 people earning £20k each and the gap widens the more the high earner earns and more in indirect taxes (such as VAT and fuel duty) because they have a higher disposable income.