Monday 19 November 2012 8:50 pm

It is shocking just how much tax most workers have to pay

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ONCE again, Boris Johnson is making sense on tax. He is right to be calling for a lower tax economy and to oppose increasing the tax on homeowners – while simultaneously demanding the elimination of the loopholes that mean that the current system is riddled with problems, especially when it comes to corporation tax.

The reason Boris’ position makes more sense than most other politicians’, including many of those in government, is that the Mayor realises that while there is plenty of avoidance, and that this needs to be dealt with, the silent majority of non-avoiders already pay far too much tax. The amount handed over by most professionals in the City in particular is monumental.

Take the figures for income tax. High earners – many of whom work in London – pay a massive amount. The top one per cent – those on incomes from employment, self-employment, interest or dividends of £156,000 or more a year – are expected to pay 24.2pc of all income tax 2012-13, even though they will earn only 10.8 per cent of all income. The top 10 per cent – on £50,500 or more a year – will pay 55.3pc of all income tax while earning 33.2 per cent of all income. The top 31,000 individuals – those set to earn £500,000 or more in taxable income – are expected to pay an astonishingly large £14.8bn in income tax, substantially more than the £13.9bn paid by the bottom 13.6m taxpayers who earn £20,000 or less (a number which is in fact even larger as it doesn’t include those whose earnings are so low that they fall below the income tax threshold).

On average, those earning £500,000 or more pay an average of 43-44 per cent of their incomes in income tax (they also pay national insurance as well as indirect taxation). The top 2,000 earners pay £2m each on average in income tax alone. This is why the decline of the City and the drop in the number of high earners is terrible news for the Treasury: in 2009-10, 16,000 people earned £1m or more; in 2010-11 just 6,000; in 2011-12 10,000 and in 2012-13 a mere 8,000.

The poor and middle classes are also being hammered, with even minimum wage earners paying a scandalous share of their wages in tax. Economists usually agree that employees, not employers, pick up the bill for national insurance, even that part misleadingly known as employers’ NI (wages would be commensurately higher in their absence). The combined tax on labour is extremely high. Income tax and NI mean workers pay a shocking 40.25 per cent tax on earnings between £8,105 and £42,475; 49 per cent on £42,476-£100,000; 66.1 per cent between £100,000-£116,210; and 57.82 per cent on £150,000 or above. Of course, there is much more to tax than direct tax: Vat and duties hit everybody but the poor disproportionately so.

The increasingly popular idea that taxing property would be an easy way of raising even more money is disastrously deluded. Stamp duty was hiked to 7 per cent (or more in some cases) for homes worth £2m+ this year. In London, sales under £2m dipped one per cent in the third quarter. But sales of homes worth £2m-£5m collapsed 53 per cent compared to the third quarter of 2012, according to Land Registry data analysed by London Central Portfolio. This will have triggered a decline, not an increase, in tax receipts for that category of homes, in a stark illustration of Arthur Laffer’s famous curve.

Britain is obsessed with tax avoidance. This will only be solved through comprehensive tax reform. But most people are already appallingly over-taxed. Their vast contribution to the Exchequer should not be forgotten.