IFS: UK tax system ‘punishes success’

RELYING ON the UK’s highest earners to shoulder the bulk of the UK’s tax burden is not a sustainable basis for the country’s long-term economic future, the Institute for Fiscal Studies has claimed.

Continuing such a trend could see both the ability and willingness of the rich to pay the highest proportion of taxes risked, the think tank warned.

At present, the 300,000 highest earners – all above £150,000 per annum – pay nearly 30% of all income tax – and 7.5% of all tax revenue.

The threat to public finances stems from the possibility these high earners could opt to emigrate to lower-tax jurisdictions, find tax loopholes or simply see their fortunes decline, the IFS said.

It added the government has become incredibly sensitive to the behaviour of what is a very small group of taxpayers, and should instead look to find new sources, rather than the alternative of borrowing.

“The government might be concerned if the Exchequer becomes increasingly reliant on one particular revenue source, as it increases the risk that a shock to one revenue source would have serious implications for total revenues,” the IFS said in its annual Green Budget.

Steve Baker, the Conservative MP for Wycombe, told the Telegraph: “It is a cruel fairy tale to believe that 99 per cent of the public can live on the earnings of one per cent. A policy of soak the rich is not a sensible one; the system cannot sustain itself.”