Broad shoulders: raising taxes at the top

This project will provide evidence on the potential of raising tax revenue from high income and high wealth individuals.

Demographic and structural pressures mean the UK government is faced with raising taxes or decreasing public expenditure. Among policymakers, the accepted thinking is that the only way to raise significant revenue is through broad-based tax rises on earnings, such as increases in National Insurance and freezing Income Tax thresholds.

However, previous research shows that tens of billions of pounds are potentially available through the taxation of high income and high wealth individuals.  

Unprecedented access to tax records will allow for a novel quantitative study looking across the full range of taxes affecting individuals with income over £100,000 or net wealth (including pension rights) over £1m.

Research questions

The research will address four key questions:

1. How much income and wealth do those at the top have, and how do income and wealth relate?
2. What strategies are used to escape taxes (legally or illegally), and how can tax rules be reformed to counter these behaviours?
3. How do taxes on those at the top impact real economic activity and what are the economic risks of raising taxes on this group?
4. How should reforms to taxes on those at the top be designed, and how much revenue could be raised from such reforms?

Approach

Personal tax records will be linked for the first time with firm level financial data from Corporation Tax and VAT records, company and land ownership data, and survey data from the Wealth and Assets Survey, to create longitudinal linked employer-employee data spanning almost a quarter of a century. Household level analysis will be made possible by linking individuals by their tax filing addresses.

The research will be completed in three phases:

1. measuring the size and distribution of sources of income exempt from income tax alongside the impact of non-compliance on reported incomes
2. understanding responses to taxation and the effects on revenue and inequality from scrapping or capping some reliefs
3. and estimating the economic impacts of raising income tax and reforming tax reliefs.

Outcomes

This research will challenge misconceptions about the revenue that can be raised from different groups and the economic impact of these options, as well as provide policymakers with concrete recommendations for change.

The findings will be communicated through policy briefs, reports, policy workshops and events. An interactive online tax simulator will be created, allowing individuals to design their own reforms.