The UK has the most progressive income tax system in the G-8

I\’m sure that this is something that will surprise many. The UK actually has the most progressive income tax system among the G-8 economies.

You can also get some interesting information about progressivity from the two charts. A rough measure of that is the difference in the (average) tax rate shown on the two charts. A bigger difference shows a more progressive tax system:

  • U.K.: 22.3%
  • Italy: 21.1%
  • America: 20.7%
  • Canada: 20.1%
  • Japan: 18.8%
  • Germany: 16.6%
  • France: 16.2%
  • Russia: 0%

Not surprisingly, England tops the list: that’s why all their rock, movie, and sports stars live in other countries.

Leave aside the Yank\’s inability to distinguish between the UK and England (although damn, this one should know better, he used to busk on the London Underground).

The difference in average tax rate between low earners and high earners is higher in the UK than in the other countries. We have a more progressive income tax system.

Doesn\’t seem to do us all that much good on the inequality front though, does it? So, err, maybe a progressive income tax isn\’t the solution to income inequality?

16 thoughts on “The UK has the most progressive income tax system in the G-8”

  1. “Suppose you invented a policy, some kind of economic miracle, which doubled the incomes of the poorest ten per cent of families without the Government spending a pound. That would reduce benefit spending. It would also increase tax revenues from the poorest. The same method that the IFS are using in their reports would show the effects of that policy as horribly regressive, cutting spending on the poor and shifting the fiscal scales against them.

    Of course that is an extreme and artificial example. But it shows the big problem with the IFS analysis, which essentially assumes that the fortunes of the poor add up to the amount of Government money spent on them.”


  2. Well.. Quite.. Because if inequality is a problem, then it’s a wealth issue and not an income issue. Tax is heavily biased towards income from labour, so you can make it as progressive as you like, but unless you fundamentally alter what we tax, then all it will do is out one or two breaks on the rate at which inequality grows. People who defend things like the 50% band on the grounds of fighting equality are morons.

  3. >Leave aside the Yank’s inability to distinguish between the UK and England

    I expect he knows the difference, but like most of us from outside the the UK we just don’t really care about it.

  4. Or we know about it, and care enough to tweak the people in the UK/England by deliberately conflating the two.

    And then there’s the Andy Murrayometer:

  5. Does the difference between $200,000 and $25,000 really show the progressiveness of a tax system? What proportion of people earn $200,000?

    I really don’t think all or even many of England’s sports starts live outside the country, either, for obvious reasons.

  6. Higher rate tax is not the problem. The problem is the near-confiscatory rate of effective tax on those struggling to get by.
    Take a honest self-employed guy, like me except poorer, whose wife cares more about people than about money and hence is underpaid so they are entitled to working tax credits and child tax credits. Then under New Labour (and still is until IDS’ reforms get through) the marginal tax rate on his earnings is 73.25%, but if the oldest child goes to university that rises to 87.4%. It appears (but that appearance may just be due to the incompetence of the Student Loan Company) that with two children at University it rises to 102%. That, of course, ignores the non-tax-deductible nature of some consequential costs, such as buying a bite to eat in London before catching a late train home after working overtime which could wipe out the net pay from two hours’ overtime. Even if it does not quite do so, there comes a point when the extra effort just isn’t worth it.
    For those moving from benefits into employed work, the non-deductibility of travel costs can (for anyone commuting from my home town does) more than wipe out the net pay from any plausible job.

  7. John77 – you can’t add student debt incurred to be paid by Honest Bloke Junior out of *his* income over GBP15k after he graduates, to the marginal tax rate faced by Honest Bloke Senior today. That just doesn’t make sense…

  8. (I agree with your main point that 73% is still far too high, which – combined with administrative inefficiencies – is why means-tested benefits are generally worse than universal allowances)

  9. does fairness and justice count against the traditional spite, envy and greed.
    Is that not the reason feminism was greeted with such glee because there suddenly were a mass more taxpayers to add to the money heap.

  10. @john b: actually I think John77 has a point about the student loan stuff. The disincentive to work is even stronger than that actually, since a lot of university bursaries are dependent on parental income (not assets), and those bursaries are cold hard cash not a theoretical debt that may never need to be repaid anyway due to the income thresholds.

    Some people genuinely do consider their overall family finances, even though their child is not entirely dependent on them after the age of 18. For them, the logic of “what’s the point of earning £10 more, if it means £15 gets taken off my son/daughter” is entirely compelling. I know several people who have reduced their hours, downsized their jobs, or even given up work early, primarily due to the marginal effect of children at university.

    May not be as selfless or illogical as it sounds: a couple of them were men from multigenerational (3-4 generations under same roof) British Asian households where the children were expected to return from university and settle down permanently in the family home. In that context it makes sense to view resources as pooled, and absolutely no point for the family unit to take a net loss.

  11. @john b: though of course you’re also correct, it’s nonsensical to add this stuff on to “marginal tax rate faced by Honest Bloke Senior today”. As John77 said, “higher rate tax is not the [only] problem”. And it’s not just the impact on people’s *own*, *individual* marginal tax rate, *today*, that drives their decisions about how worthwhile work is. In addition to other factors, *future* effects on *others they care about or are financially entangled with* are also considered. If you want to understand the effects of a tax-and-benefits system, you’ve got to include those considerations too.

  12. MyBurningEars has a point about bursaries that I had overlooked/omitted because they are at the discretion (at least partly) of the university/ college. I was only taking the reduction in the student grant and the increased parental contribution required. Include bursaries at the rightly generous level given to poor Oxford students and you are easily over 100%

  13. @John77: as you say the bursaries are to some extent discretionary, but are are also driven by government policy, particularly regarding the “right” to charge £9000 tuition fees. One reason I don’t pay very much attention to arguments about “Is Country X’s tax [or tax’n’benefits] system more progressive than Country Y’s?” is that Countries X and Y tend to have very different circumstances and policy sets. And the “effective tax rate”, as you put it, that people actually experience and set their decisions buy, is driven by the complex interaction of lots of individual circumstances and policies, so not easily comparable. Your post nailed two brilliant examples: marginal transport costs of work (affected by both human geography and transport policy) and university funding (mixture of governmental policy and decisions taken within the higher education sector).

  14. You caught me Tim. I do know the difference, but I do interchange them freely. Mostly that’s because I have quite a few people ask me what the U.K. is.

    P.S. Once in while I’ll do it just to piss off the (Northern) Irish.

    P.P.S. I don’t do it to piss off the northern neighbors. If I want to do that I make a point of calling them the Scotch. Works every time 😉

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