Why Nigel Lawson was the most redistributive Chancellor of the Exchequer

Alfred T Mahan

These figures look peculiar to me. For instance, in 2008-09, how come the top 10% pay 53.1% of all Income Tax and the lower 50% pay 71% of it?

kinglear

Fraser - is the "Lower 50%" for 2008/9 not incorrect? And 86/7 only adds to 97%. But your posit is correct.

michael freeman

Good stuff - but is the final figure in the table wrong?

John de Finchley

Something wrong with your right hand column, Fraser. If the top 10% pay 53% of the tax the bottom 50% can't be paying more than 47%.

Searcher

In 2008-9 the bottom 50% pay 71% - shome mistake shurely?

Also, interesting that under NuLab, HMRC appear to offer less segmentation of the data

James

1) There's a typo in the 2008/09 lower 50% box. And it's trawl I think you meant not drawl.

2) I presume the members of the "top 1%" or "top 5%" of earners doesn't include non-doms ? They also make use of the fire department, schools and roads but don't pay for these services. Perhaps they "should be called names" ?

3) Any comments on last night's Question Time ? Theresa May and Hazel Blears both seemed to be calling each other liars over George Osbourne's reaction to proposals to deregulate the mortgage market. Perhaps this is something the Tory Party ought to get a grip on because it will be a major line of attack from Labour over the next few months.

Pete Hoskin

Alfred T Mahan et al: thanks for the spot. The final figure should have read 11.5 not 71. It's been corrected now.

Alfred T Mahan

Thanks for the typo correction. Isn't it also possible to complete the figures for the "Next 40%" by simple maths as 38.1% and 35.4%?

Adrian

This is why Nigel Lawson should be regarded as the most distributive Chancellor in British history.

This is why Fraser won't be getting a maths degree any time soon.

The portion of the total tax take people are paying is an extremely poor guide to how redistributive any tax system is.

If the richest man paid £1 in tax and the rest of us paid nothing, the richest pay 100% of the tax but only £1 would be redistributed.

Chuck Unsworth

Define 'Redistributive'.

CS

***If the richest man paid £1 in tax and the rest of us paid nothing, the richest pay 100% of the tax but only £1 would be redistributed.
***

Adrian, far from Fraser needing the maths lesson, io's you who needs the logic lesson.

It's fine for you to choose £1 as your hypothetical tax take as it's as logical as saying £1m. But you cam't then go on to quantify £1 morally.

If you want to quantify £1 morally, you'd have to factor into your argument the consideration that, if the rich pay £1 in tax and that accounts for the government's total tax take, then you've multiplied the buying power of £1 umpteenfold and so there's nothing "only" about it.

It would be more honest to phrase it as follows: if the richest paid the government's entire tax bill and the rest of us paid nothing, those of us who are on lower incomes would be getting government and the state free of charge.

If the rich are paying 100% of the bills for the healthcare, welfare, pensions, policing, defence, etc for the entire country and the poor are paying none of it, that sounds pretty redistributive to me.

Tom Freeman

Adrian's right. And these figures don't take into account how the share of total pre-tax income for the top 1% etc has grown over this period.

TrevorsDen

"The portion of the total tax take people are paying is an extremely poor guide to how redistributive any tax system is."

Only if you use a facile example to attempt prove your point. When Lawson reduced the top rate the total amount taken went up.

Tiberius

I mentioned the Laffer Curve in my question to George Osborne, for which I received my splendid CH tee shirt. I hope to hear plenty from George next week about the direction of travel on tax, although with the current economic quagmire, detailed policy is likely to remain difficult to formulate.

Fraser, I'll add my plaudits for your performance on QT, especially coming on the back of your eyeballing Prescott last week. I agree with your Mum on the other thread - you're at the top of your game. To see Hazel Blears preening herself in the glow of your flattery was a sight to behold.

Nick Kaplan

Adrian the GDP under Lawson would have been larger than under previous governments so the rich would have been paying a larger share of a larger amount of money.

These statistics highlight the perversity of worrying about equality rather than poverty as they go to show that if one allows inequality to grow the revenue to use to reduce absolute poverty will increase. It is interesting how the left will not accept these sort of statistics which are shown time and time again. For me it just confirms how the left are not motivated by a desire to help the poor but are instead motivated by a desire to clobber the rich, i.e. envy. What pernicious ideology socialism is!

Dan

While I agree with the sentiment, I think the frame of reference is wrong here.

Isn't redistribution about equalising income distribution and not tax burden?

Redistributiver tax regimes use the tax system as a mechanism for sharing out wealth created by the economy. The proportion of tax paid is an irrelevant metric.

I'm not an economist, but I think I'm with Adrian on this one.

Adrian

TrevorsDen

If by facile you mean simple - then yes, I deliberately made it simple through reductio ad absurdum.

But then your argument is equally absurd. All post-war Chancellors I am sure (with the possible exception of Major and one or two other short lived holders of the post) will have redistributed more money than their predecessors thanks to economic growth.

Tiago Neves

Good argument. However, to check its validity (meaning, its justice), we need to know how big is the average difference between the income of the top 1% and that of the other categories. So, when someone says that he's paying 23 times the national average in income tax, that by itself tells me very little. I need to know if that person earns exactly 23 times more than the average, or if he/she earns more or less than 23 times the average.

Adrian

Incidentally, it is not envy to want a more equal society. It is a belief that those societies are happier and better.

There is a difference of ideology here, no need to resort to perjorative psycological accusations.

Ian C

It matters not one jot what the difference between the top and bottom incomes are.

What matters is that the top few pay the biggest slice. End of story. Polly Toynbee has obviously got to those who think otherwise - not something to be proud of!

John

Adrian, believe all you want, but why do I - in the wealth creating sector - get the funny feeling I'm paying your salary?

Fact is, higher tax rates yield lower overall taxes paid. A smaller pot has to mean less available to give to/provide for the poorest.

If people were given the true choice: more equality and more poverty, or more inequality and less poverty, the vast majority would go for the latter.

Talia

Fraser, I’d be interested to hear your views on last night’s Question Time: the mood of the audience, your encounters with fellow panellists etc. Also, What did Derek Simpson say to you near the end – something about jokes? I do hope he wasn’t insulting you. (I thought you very good and I promise I’m not Fraser’s mum).

Adrian

Fact is, higher tax rates yield lower overall taxes paid.

The above argument is so obviously flawed: if it wasn't why don't we cut taxes to zero and raise an infinite sum?

What you mean is that there are circumstances where cutting taxes would increase revenue. I don't dispute it and I never have. But it is not some iron rule of economics.

If people were given the true choice: more equality and more poverty, or more inequality and less poverty, the vast majority would go for the latter.

Plainly that isn't the "true choice" - because if it was the Indians would be richer than the Swedes.

Adrian, believe all you want, but why do I - in the wealth creating sector - get the funny feeling I'm paying your salary?

Not only are ad hominem arguments the sign of a poor debater, in this case they are wrong.

JohnAnt

More equal societies are 'happier and better'?
Can you give an example of one of these paradises, Adrian?
If you can't, your premiss is simply guesswork.

John

A poor debater will try to distract from the real debate. Indians and Swedes? OK so let's agree some fundamentals. These are arguments about the situation here in the UK today, the recent past, and near term future. Sounds like you agree with the principle of the laffer curve, which as you imply, would show reduced (or zero) tax takes at either extremes of possible tax rates. Fraser and recent ONS figures show that we are somewhere around the middle of the laffer curve, and arguably towards the side of the curve that would show a diminishing total tax take with increased tax rates, from where we are today.

If you accept that, everything else falls into place: Higher tax rates yield a lower tax pot to spend on good causes, increasing absolute poverty.

Ian C

Adrian, that's what the Laffer curve is all about! Wiki is accurate enough on this for an idea, if you don't what it is.

Geoff

Relative income is more important than absolute income in determining happiness. (That's not to say absolute income is irrelevant - richer people are generally happier). This explains why some studies show Scandinavians (with smaller gaps in relative income) are among the happiest in the world, and also why overall levels of happiness don't increase as much as you'd expect as countries get richer - as even with an absolute increase across the board, if inequality remains the same or worsens, then the relative position changes.

http://www.eurekalert.org/pub_releases/2005-08/asa-mcb080805.php

, also Bell & Chernova 2005, summarised as: "This paper uses data from the World Values Survey to investigate how an individual's self-reported happiness is related to (i) the level of her income in absolute terms, and (ii) the level of her income relative to other people in her country. The main findings are that (i) both absolute and relative income are positively and significantly correlated with happiness, (ii) quantitatively, changes in relative income have much larger effects on happiness than do changes in absolute income"

Which suggests that if the gap between rich & poor widens (as it has done over the last 20 years), then the country as a whole should be less happy.

Adrian

I am aware what a laffer curve is. I am also aware it is bell shaped.

The happiest country on earth is reckoned to be Iceland which has a Scandinavian welfare system and where politics are essentially about which part of social democracy they want to implement.

Nick Kaplan

Adrian says; “it is not envy to want a more equal society. It is a belief that those societies are happier and better.”

I’m sorry but this is simply nonsense all you are admitting here is that the satisfaction of envy makes people happy! Envy is essentially jealously of the status of others, it is the begrudging of the benefits of others in a better position than our own. The fact that equality may make people happier does not prove in the slightest that the initial desire to equalise had nothing to do with envy... quite the reverse. The fact is that the left are perfectly happy to tax the rich at incredible rates, even in the full knowledge that government revenue will decrease as a result (Toynbee et al say this nonsense all the time). In other words those such as Toynbee would rather an equal distribution of destitution than a ‘maldistributed’ plenty. Even when all are getting richer leftists will complain that the rich get richer at a faster rate. Even though the wealth and jobs created when the rich get richer is the reason why the poor are getting richer it is still abhorred by socialists. It is this promotion of equality in the place of abundance that proves that socialists are motivated by envy or the desire to appease it in others. I can see no better example of envy than taking from some even in the knowledge it will probably harm and certainly will not improve the lot of others. These statistics (and numerous others which show how cutting taxes raises revenue) show how socialist goals are aimed primarily at penalising the rich, not helping the poor. If satisfying envy makes people happy it doesn’t give the government the right to satisfy it on their behalf, it gives government the obligation to teach people to be more concerned with their own status and less envious of that of others.

As Churchill said “The inherent vice of Capitalism is the unequal sharing of blessings; the inherent virtue of socialism is the equal sharing of misery.”

Adrian also says: “why don't we cut taxes to zero and raise an infinite sum”

This is obviously a puerile argument. The fact is that if taxes were 100% revenue would also be zero as nobody would work; this fact is the basis of the Laffer curve which proves that lower taxes can raise much higher revenues. Here is some empirical evidence, just download and read the pdf:

http://www.conwayfor.org/campaigns.aspx

nigel lawson

Adrian I made the mistake of disagreeing but respecting your argument but 4.29 pm you show your ignorance. It is possible for the line graph for tax take against tax rate to be something other than a staright line, hence the Laffer curve is called 'curve'. Google it and educate yourself.

geoff howe

adrian u say u know what the curve is about so how can u come up with such dimwit comments as at 4.29?
open your mind
free your brain from the arthritis and sclerosis of your entrenched nulabour position

Nicholas

Fraser, I join Talia in the hope that you will provide some insight into QT. The audience seemed equally angry about capitalist greed and Labour authoritarianism.

Nicholas

Adrian: Incidentally, it is not envy to want a more equal society. It is a belief that those societies are happier and better.

The objective may be laudable but it is the socialist route map towards it that is wanting and invariably ends in failure, unintended consequences and resentment from newly alienated groups. As we have seen this last 11 years.

Nicholas

Adrian: Incidentally, it is not envy to want a more equal society. It is a belief that those societies are happier and better.

The objective may be laudable but it is the socialist route map towards it that is wanting and invariably ends in failure, unintended consequences and resentment from newly alienated groups. As we have seen this last 11 years.

Northern Monkey

For the commenters on here - Adrian is not wrong or ignorant in what he says, he's just expressing a different opinion.

Those who shout down others who have different opinions and wrongly accuse them of 'ignorance' have lost the debate in my opinion.

For the record, I think Fraser's analysis is fundamentally wrong.

What happens if every country in the world copied Ireland's tax system identically? Would every country gain like Ireland did? No, of course not. As each country lowered their corporation tax, you'd see smaller and smaller gains in economic growth (decreasing returns to scale) as there would no longer be any incentive for capital to move as taxes would be equally low everywhere. All you'd be left with is a much reduced tax base, which even by using the Laffer curve, would result in lower tax revenues than what we have today. So how do we pay for health, education etc? Or should we just start shutting down schools and hospitals?

Incidentally, many economists still reckon we are actually on the left-side of the Laffer bell-curve since the government has raised taxes in recent years, and tax revenue has still been going up.

Perhaps Fraser and his Tory followers should brush up on their knowledge of the 'dismal science' before speaking out.

Fergus Pickering

Pol Pot's Khmer was a more equal society than ours. It might have been happier I suppose since the moaners were all dead.

John Moss

Thatcher's Governments not only increased redistribution of income from rich to poor, by lowering tax rates, but also of wealth through the sale of Council Homes.

These homes, paid for by rich(er) tax payers, were sold at a discount to poor(er) people.

1.5m homes were sold at an average discount of 25%, say average house prices were £50,000, that equates to a transfer of almost £20 billion of wealth from rich to poor.

Ian C

Well said Nick Kaplan. Toynbee et al are just too ideologically concerned about 'equality' to see it and it's incredible what traction this line of thought has.

Adrian

Let me just repeat the point: there is no rule that says if you cut taxes you increase revenue. There is one that says there is an optimum rate of tax that maximises revenue at the lowest feasible rate.

Where we are on that curve is the issue. As has been suggested above we may well be on the left of the optimal point.

Where is the evidence that a cut in taxation from today's rates will increase revenue? Historical examples don't cut it because they refer to other countries, other rates of tax and other times.

If you want to have a debate then please present some evidence, if you want to call out names, go back to the playground.

Nick Kaplan

Adrian; Read the pdf on the link I gave you, it shows that a rate of 26% is likely to increase revenue over time (we curently have a 28% rate).

Chas

Fraser - excellent article, as ever. Recapture the word "progressive" for conservatism. Do not let the left appropriate it. We know that socialism is the most regressive doctrine of all time and condemns us all to penury.

Adrian

The AEI, the Taxpayers Alliance and the CEBR. Do me a favour!

I though we were trying to be serious here. Got any peer reviewed stuff to present?

In any case I note that this is a report about corporation tax, not about rates of personal taxation.

Nick Kaplan

Wow Adrian, is that the level of debate you’re going to sink to? Essentially all you have said in your last post is “that’s a Tory think tank therefore I will stick my fingers in my ears and pretend I never heard anything.” This may be a report on corporation tax but it shows the general point that if one is interested in maximising revenues lower tax rates can often be the way to go.

You asked for evidence I provided it. If you are not grown up enough to accept you are wrong then stop debating and just go join the rest of the fact denying envious thieves in the Labour party.

PJD

What is not shown in the table is the total income increase that the top earning 1, 5, & 10 percentage of tax payers over the past 33 years.

Without more detailed information on what the tax rates were in the abovc years applied to which percentile and what each percentile earned in total as a percentage of the total population you cannot draw the conclusions that that this article is.

Hadrian

Governments should get no more than a tenth of an individual's income; anything more is state theft.

PJD

If anything, these figures indicate the opposite to what Fraser Nelson has concluded.

The reason that the highest tax earners are paying a greater share of tax now than in the mid 70s is because they are earning an even greater share of the total income.