When is the Truth a Big Lie?

George Osborne regards himself as a “builder”. He repeatedly declared his self-appointed status in his recent Autumn Statement to the House of Commons. Is he to be believed? Take the case of the burden of taxation.

In telling Britain to “live within its means”, he amended taxes to increase the burden on low income earners. But it appears that we should be grateful to Mr Osborne, and rich taxpayers. For, he declared: “[T]he richest fifth now pay more in taxes than the rest of the country put together.”

Really?

Well, strictly speaking, he wasn’t lying. But let’s burrow a little deeper.

We are told that 235,000 people earn over £150,000 a year, and they contribute not far off 30% of the UK’s income tax revenues. Is this the mark of a “progressive” system for raising revenue? Taxing the rich to help the poor?

Forget it!

Those income tax payers live in houses worth £1m and more in the market today. Most of their houses are in London and the south-east of England. Assume that they all live in houses worth no more than £1m this year. This means that, at current rates of increases in house prices, they will claw back around £75,000 in capital gains each year up to the recession in 2019. In other words, what they pay to the exchequer as income tax, they receive back in the form of free handouts from HM Treasury. For those capital gains are the value which is created by public spending on infrastructure, a value which the Treasury fails to collect on behalf of taxpayers.

The value is allowed to leak out, and most of it is captured, through the land market, by those who own the most expensive homes. In the final seven years of the current property cycle, with prices rising at between 8% and 10%, they will pocket capital gains rising to £180,000 in 2026 alone, the peak year in the housing cycle.

This means that high income tax payers claw back more than they pay into the Treasury. Or, to put it another way, they enjoy their public services without contributing to the public purse!

My illustrative figures are abysmal understatements of reality. Towards the end of the property cycle, prices rise by upwards of 20% a year. For anyone interested in reading the detail of how those capital gains are funded by low-income taxpayers, see my Ricardo’s Law (2006: pages 24, 297). Low income earners, in the main, are tenants. They spend their lives paying rents to landlords. That means they reap no capital gains, courtesy of HM Treasury. So they are subsidising the rich.

George Osborne is not a liar. Not in what he says. He lies by omission.

One Response to When is the Truth a Big Lie?

  1. Alan Longbon 2 December 2015 at 2:44 pm #

    Cameron too is playing his part, being all too keen to go to war in Syria, while demanding austerity and belt tightening at home. Strange how money can always be found for war but not for good schools and hospitals in a government budget.

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