DOMINIC SANDBROOK warns we risk a deeply divided Britain on income tax

A quarter of a century ago, pale with terror, I stumbled in to my first university history tutorial. It is fair to say that I was not a stunning success.

The subject was the decline and fall of the Roman Empire, something about which I knew next to nothing. My tutor asked me what I thought held states together. 

What was it, he asked, that made a state a state, and not just an anarchic, fractious, violent blob?

There was a horribly long pause, during which I gazed desperately around for inspiration, and then the tutor said wearily: ‘Three letters.’

And then, after another interminable pause, he spelled out, perhaps a bit too gleefully: ‘T … A … X.’

He was exaggerating, but he was not entirely wrong. Tax is one of the key pillars of government, and, indeed, of society itself.

No sane person enjoys paying it. But without our taxes, the British state, from the nurses in your local hospital to the guards at Buckingham Palace, would not exist. 

Since 2010, when the income tax threshold was just £6,450, the Tory-led governments have steadily increased the allowance, on the grounds that this takes the pressure off low-earners. But this has come at a social and political cost [File photo]

No taxes would mean no borders, no roads, no police, no NHS, no state pensions . . . and the list goes on.

A country without taxes is, almost by definition, a failed state.

In this respect, then, we are bound together as citizens by something none of us likes. We are, as they say, all in it together.

Or rather, some of us are.

For as the Institute for Fiscal Studies (IFS) reported this week, the latest HM Revenue & Customs tax data shows that the percentage of British adults paying income tax has fallen to just 57 per cent, the lowest figure this century.

To put it another way, 43 per cent are paying no income tax at all. Walk down your local high street, and almost half the people you pass aren’t paying a penny.

Of those, a growing number are retired. Some are unemployed; some have given up work to concentrate on their families.

But an increasing proportion fall below the income tax threshold (the amount you can earn in a year without having to pay tax) which has been raised from £6,450 to £12,500 since the Conservatives came into office in 2010.

According to the IFS calculator, almost 12 million people earn less than £12,500 a year, which means they don’t pay any income tax. That’s good news for them, at least in the short term. But it has consequences.

If the tech giants paid their fair share, the rest of us would not have to fork out so much. Who, apart from Facebook’s egregious Nick Clegg (its head of global affairs), could possibly disagree with that?

Chief among them is the fact that, entirely contrary to what you read in Left-wing newspapers, the most successful people in society are paying by far the largest share.

You hear a lot about the ‘1 per cent’ these days, none of it complimentary. But, as the tax data shows, the richest 1 per cent in Britain — just 300,000 people — pay 27 per cent of our nation’s total income tax.

These people, as you might expect, conform to a particular type, with the IFS describing them as ‘male, middle-aged and London-based’.

In the capital city, they earn more than £300,000 a year. By contrast, to qualify for the top 1 per cent outside London, you have to earn £162,000.

Perhaps understandably, they never get a good press. Evidently it is not in our national character to say anything remotely positive about people richer than we are — which is one of the things that distinguishes us from, say, Americans.

If you listen to Jeremy Corbyn and his fans, for example, you might think that these people are all tax-dodging freeloaders, greedily sucking the life-blood of the working classes.

Indeed, The Guardian newspaper, that Kama Sutra of the politics of envy, greeted the IFS report with a spectacularly disingenuous editorial, claiming that the 1 per cent have been ‘enjoying riches beyond belief . . . while the schools and hospitals and libraries and parks on which the rest of us depend are run down to breaking point’.

No taxes would mean no borders, no roads, no police, no NHS, no state pensions . . . and the list goes on. A country without taxes is, almost by definition, a failed state. In this respect, then, we are bound together as citizens by something none of us likes [File photo]

Even by The Guardian’s standards, this was breathtakingly misleading. For, as the IFS report shows, without the taxes paid by those high-earners, many of our ‘schools and hospitals and libraries and parks’ would simply cease to exist.

I realise, of course, that making this elementary point invites the wrath of the Corbyn cult, whose enthusiasm for demonising high-earners knows no bounds.

Indeed, the Shadow Chancellor, the Marxist John McDonnell, has publicly promised that if, God forbid, he ever comes to power, he intends to hammer the rich with whopping new wealth taxes.

The consequences would be utterly predictable.

In today’s hyper-mobile, globalised world, they would be off abroad within weeks.

Only yesterday it was revealed that more than 12,000 non-domiciled taxpayers (the super-super rich, whose permanent homes are abroad) have left Britain since 2017, alarmed by the prospect of a Corbyn government.

As a result, tax receipts have fallen by a staggering £2 billion in just a year.

To put it another way, the disappearance of all those non-doms has cost us more than two million cataract operations, 236,000 heart bypass operations or 355,000 hip replacements.

But if Mr Corbyn came to power, the infamous brain drain of the mid-Seventies, when a top income tax rate of 83 per cent drove celebrities such as David Bowie, Michael Caine and the Rolling Stones abroad, would look like a mere trickle by comparison.

That would be great news for New York, Tokyo, Paris and Frankfurt. But it would not be such good news for your local primary school.

With our economy dangerously dependent on revenue from high-fliers, the impact on our public services would be catastrophic.

Just to keep all those schools and hospitals going, a Corbyn government would almost certainly have to hike taxes on the rest of us.

All this is a valuable reminder that, despite the anger about the costs of the 2007/2008 financial crisis, it is absurd to treat the rich as pantomime villains.

Only yesterday it was revealed that more than 12,000 non-domiciled taxpayers (the super-super rich, whose permanent homes are abroad) have left Britain since 2017, alarmed by the prospect of a Corbyn government [File photo]

The fact is that healthy, dynamic societies celebrate success. They don’t punish ambition; they reward it.

They certainly do not succumb to the lazy, demagogic scapegoating of Mr Corbyn and his cronies.

But there are other, equally powerful reasons why the IFS report should give us pause for thought. For one thing, is it healthy for 43 per cent of the adult population to pay no income tax?

It is true that when William Pitt the Younger introduced income tax in 1798 to fund the Napoleonic Wars, it applied only to people earning more than £60 a year, the equivalent of about £80,000 today.

However, the assumption across the Western world now is that most people ought to pay something, however small. Paying income tax has become one of the basic responsibilities of citizenship.

In effect, it is a kind of contract. You pay your share, and in return you get a little stake in society.

But if almost half the population don’t pay, then those who do — the 57 per cent — are likely to feel resentful. Indeed, I wonder how many taxpayers, reading the IFS figures, will be simmering with outrage that they have to shoulder so much of the load.

And if people don’t pay, they’re much less likely to understand the cost of our public services.

In effect, they take them for granted, oblivious to the fact that someone else is paying for them.

Just think of all the trivial 999 calls with which our emergency services have to cope.

The woman who scratched her toe while cutting her toenails; the man who swallowed some chewing gum; the caller suffering from minor diarrhoea; the person who received the wrong pizza topping — and, yes, all these are genuine cases, publicised by the police in an effort to stop people wasting their time. 

If people knew how much these services cost, wouldn’t they think twice before picking up the phone?

And there are broader issues. Since 2010, when the income tax threshold was just £6,450, the Tory-led governments have steadily increased the allowance, on the grounds that this takes the pressure off low-earners.

But this has come at a social and political cost. For paying income tax, however small, gives people a vested interest in good government. 

You want to be sure the politicians are spending your money wisely, because you know how hard you worked for it. But if you don’t pay, you’re more likely to shrug your shoulders.

After all, Comrades Corbyn and McDonnell claim they can always soak high-earners for more money, so why should you care if they blow it on a failed utopia? They can just take more money from the rich, can’t they?

And behind this lies a deeper problem. In today’s increasingly fragmented, atomised and narcissistic society, we have lost sight of the contributory and participatory principles on which our shared citizenship depends.

For their part, for the past two decades, politicians have promised to rebuild a sense of communal endeavour.

Tony Blair talked of tilting the balance back from rights to responsibilities. David Cameron told us that we were ‘all in this together’.

And Theresa May promised to rekindle the ‘spirit of citizenship’, strengthening ‘the bonds and obligations that make our society work’, not least by ensuring that we all pay a ‘fair share of tax’.

You hear a lot about the ‘1 per cent’ these days, none of it complimentary. But, as the tax data shows, the richest 1 per cent in Britain — just 300,000 people — pay 27 per cent of our nation’s total income tax [File photo]

Yet how do you square that with a system in which only 57 per cent pay the most emblematic of all taxes?

Indeed, how long can a society maintain support for a universal welfare state if four out of ten people don’t contribute through income tax?

The architects of the modern welfare state, such as Labour’s Clement Attlee, always envisaged it working on a contributory principle. You pay in; you take out. A reward for hard work, not something for nothing.

This was the idea behind National Insurance, which drew on the legacy of the building societies, friendly societies and mutual support groups that were so dear to working people a century ago.

But that idea has disappeared, along with so many of the other building blocks of our national community.

Instead, too many people take the welfare state for granted, and think only of taking out.

But can you blame them?

After all, they see the world’s most famous companies flagrantly shirking their obligations, from Facebook, which paid just £15.8 million in tax in 2017 on British profits of £1.3 billion, to Amazon, which paid just £4.5 million on profits of more than £2 billion. So where will all this end?

Well, if the current trend continues, the answer is obvious.

Over time, Britain will become ever more divided. On the one hand, there will be a small, high-earning elite who shoulder most of the burden for our welfare state, but who could easily vanish abroad if the political climate changes.

And on the other, a growing share of the population who pay no income tax at all, but continue to take the benefits.

That would be the direct opposite of what the architects of the welfare state wanted.

Attlee imagined Britain as a united society, bound together by people’s shared contributions to the common good.

How, then, do we fix it?

An obvious place to start would be to reform the income tax structure so that more people pay, if only a nominal amount, to give them a stake in the system.

Equally important, the Government must stand up to the multi-national corporations who have shown such contempt for social responsibility.

It is madness to put hard-working individuals under such pressure when firms including Amazon, Facebook, Apple and Starbucks are paying derisorily small amounts.

If the tech giants paid their fair share, the rest of us would not have to fork out so much.

Who, apart from Facebook’s egregious Nick Clegg (its head of global affairs), could possibly disagree with that?

Above all, though, it is time we stopped blaming the most successful people in society for everything that is wrong with Britain today.

Jeremy Corbyn, the only 70-year-old teenager in the land, may be incapable of rising above the politics of envy, but the rest of us should know better.

It’s human nature, of course, to feel jealous.

Which of us, on reading about the latest bankers’ bonuses, has never felt a surge of resentment?

But the next time you drive past your local school or hospital, it’s worth thinking about who pays for it.