Blog
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Updated: do Brits pay more or less tax on our wages than people in other countries?
How do UK/Scottish taxes on wages compare with other countries’? It’s a simple question – but not straightforward to answer.
Looking just at rates is misleading. This chart1, for example, suggests that the top rate of UK tax is comparable with the US. That’s not really right. In the US, the top rate of Federal income tax (and, often, state income tax) kicks in at $523,600. The top UK rate – now 45% – applies from £125,140. So for most reasonably high-earning people, tax rates in the US are significantly less.

A better question is, what’s the effective tax rate – the “tax wedge” on any given amount of income?
My answer is this chart – and you can click on it for an interactive version that lets you add/remove countries:

Some immediate conclusions:
- The UK/Scotland has a much lower effective tax rate on average wages, and lower than average wages, than almost every other developed country.
- This then starts catching up quite quickly once we approach twice the average wage. And once we’re on high incomes, UK effective rates look a bit more average. Less than the expansive Continental welfare states. More than smaller countries, the US, and other countries with much less generous welfare states.
- So a good case can be made that the UK is undertaxed by international standards. That’s not something many people in the UK believe, but it doesn’t stop it being true…
Quick notes on where the data in the chart comes from:
- The chart is generated by some simple code, that takes worldwide data for tax rates and threshold (from the wonderful OECD tax database), applies it to different income levels.
- The effective tax rates include employer national insurance/social security.2 We don’t see employer wage taxes in our wage slips, but evidence suggests it is mostly borne by workers.3
- The x axis isn’t an absolute dollar amount, as realistically we can’t compare taxes on £100k in the UK with £100k in Costa Rica. Instead, the x axis is a multiple of average wages – so we are comparing tax on (e.g.) the UK average wage with tax on the Costa Rican/French/etc average wage.4
- The chart doesn’t take account of tax reliefs/deductions – these are generally quite limited in Europe, but very generous in the US… so again the chart overstates the actual tax Americans pay.
- The data is now updated for the 2023/24 UK and Scottish rates, but other countries are not updated (I have no good source for the data). Given the wider economic circumstances, it’s plausible that taxes will be going up worldwide, and so this chart may make the UK/Scotland rates look relatively higher than they actually are.
- See my previous post for more detail on the methodology and a complete list of caveats and limitations.
And if you don’t want to believe my chart, here’s the OECD’s own chart showing the effective rate of tax on average incomes:5

I continue to think that, if we want a Scandinavian level of public services, then most people have to pay similar levels of tax to most people in Scandinavia. Sorry about that.
Photo by Javier Miranda on Unsplash
Footnotes
This combines income tax and employee national insurance/social security, and for countries (like the US) where there are state taxes as well as national taxes, it adds in the average state tax. ↩︎
But not the apprenticeship levy because it’s kinda sorta hypothecated… you could definitely make a case it should be included ↩︎
i.e. because the employer has an amount they’re willing/able to pay as wages, and employer NICs come out of that). ↩︎
But the UK and Scottish figures just use the UK average wage, because my feeling is that this is the comparison people are interested in ↩︎
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Nadhim Zahawi’s lawyers referred to regulator for abusing libel law to shut down debate
I reported in July that Nadhim Zahawi, then Chancellor of the Exchequer, had founded YouGov using a tax avoidance structure. Zahawi provided an explanation which my detailed analysis showed to be false. Zahawi then shifted immediately onto a different explanation. In my opinion this showed that his first explanation was a lie – and I said so.
Zahawi had a media profile and resources dwarfing a small tax think tank – but instead of using these to explain himself, he instructed Osborne Clarke to write to me demanding that I retract. And their letter claimed that I could not publish the letter, or even tell anyone I’d received it. It was an attempt to silence criticism which had no basis in law, and for which Zahawi and his lawyers should be ashamed.
The Solicitors Regulation Authority this week issued a “warning notice” making clear that this kind of behaviour is unacceptable. I have therefore referred Zahawi’s lawyers, Osborne Clarke, to the regulator.
I’m also asking the SRA to investigate Osborne Clarke more widely. In the end, their actions cost me some legal fees but otherwise failed. But I know there are many others, without my legal background, contacts or financial resources, who have received letters like this (on behalf of Zahawi and others) and been silenced. If the SRA find that people have been silenced by deception and intimidation, then this needs to be put right.
I’ve copied below the text of my letter, with links to the referenced documents. If you prefer a PDF, that is here (but without links).
And more on Mr Zahawi coming soon…
SRA General Counsel
The Cube
199 Wharfside Street
Birmingham B1 1RN
1 December 2022
Sent by email
Dear Ms Oliver
Osborne Clarke – SLAPP – breach of SRA Principles
1. Many thanks for your publication on 28 November 2022 of the new warning notice on SLAPPs. In light of that notice, I wish to make a formal referral to you of Osborne Clarke for several significant breaches of SRA Principles. I believe you will be already aware of a number of the breaches, but you may not be aware of others.
The background
2. I retired from commercial practice in May 2022, and founded Tax Policy Associates; a think tank which works to improve both tax policy and the public understanding of tax. In July 2022, I wrote several articles and social media posts about Nadhim Zahawi. At that time, Mr Zahawi was the Chancellor of the Exchequer.
3. The essence of my writings was that, when Mr Zahawi founded YouGov in 2000, the founder shares (which ordinarily would have been issued to Mr Zahawi) were instead issued to a Gibraltar company, Balshore Investments Limited. I said this looked like tax avoidance. Mr Zahawi’s team responded by briefing several journalists that the reason for Balshore receiving the shares (which I will call the “first explanation”) was that Mr Zahawi’s father, who owned Balshore, had contributed startup capital to YouGov.
4. I investigated the accounts and Companies House filings and found that the startup capital was contributed by another investor, Neil Copp. Balshore had contributed only a token amount (£7,215). I therefore wrote that either I was mistaken, the filings were wrong, or Mr Zahawi was lying. The key Twitter thread can be found at https://taxpolicy.org.uk/evidence (attached in PDF format as tweet1.pdf).
5. Immediately after this, Mr Zahawi’s team started briefing a different explanation (which I will call the “second explanation”): that Mr Zahawi’s father received the shares in recognition of the significant advice and assistance he had provided to the business. The fact that Mr Zahawi was no longer defending his first explanation suggested to me that I had not made a mistake; in my opinion it suggested that the first explanation had been a lie. I said so. I did not say that the second explanation (“advice and assistance”) was a lie (although it seemed highly implausible). The key Twitter thread can be found at https://taxpolicy.org.uk/lying (attached as tweet2.pdf).
6. On Saturday 16 July 2022, I received an unsolicited direct message on Twitter from Ashley Hurst, a partner at Osborne Clarke (see attachment SRA1). Mr Hurst sought to speak to me on a without prejudice basis. I responded that he should put what he had to say in writing, and that I did not accept without prejudice correspondence.
7. Later that day I received an email from Mr Hurst (see attachment SRA2) asking me to retract my accusation by the end of that day, or I would receive an open letter on Monday.
8. I did not retract. On Tuesday 19 July I received a letter from Mr Hurst (see attachment SRA3).
Breaches of SRA Principles
9. The Osborne Clarke correspondence bears several of the hallmarks of strategic lawsuits against public participation (SLAPPs) which are identified in your warning notice.
Labelling
10. The email (SRA2) is marked “confidential and without prejudice”. It says:
“I have marked this email without prejudice because it is a confidential and genuine attempt to resolve a dispute with you before further damage is caused. Our client wants to give you the opportunity to retract your allegation of lies in relation to our client.
That would not of course stop you from raising questions based on facts as you see them.
You have said that you will “not accept” without prejudice correspondence. It is up to you whether you respond to this email but you are not entitled to publish it or refer to it other than for the purposes of seeking legal advice. That would be a serious matter as you know. We recommend that you seek advice from libel lawyer if you have not done already.”
11. However, the letter cannot possibly be “without prejudice”, for three (independent) reasons. First, I had specifically told Osborne Clarke I would not accept “without prejudice” correspondence. Second, even if I hadn’t done so, their email was not a genuine attempt to resolve an existing dispute – it offered no concessions, and was therefore not an attempt at settlement. Third, there was no dispute – as became subsequently clear, Mr Zahawi never had any intention of instigating a claim.
12. The claims that the email SRA2 and subsequent letter SRA3 were confidential were equally false. The content of the email and letter lacked the quality of confidence (as all the information in the documents was already public or obvious). There was nothing in our relationship which suggested that a duty of confidence could be imputed to me – the letter was unsolicited. Even if the letter had contained confidential information, there was a clear public interest in the matters under discussion (which would override the duty of confidence).
13. Hence the claims that the email was “without prejudice” and the email and letter were “confidential” were without merit, an attempt to mislead, and a breach of the SRA Principles.
Aggressive and intimidating threats
14. The email asserts that the “without prejudice” rule prevents me from publishing or even referring to the letter. This is entirely false. It is often tactically unwise for a party to publish without prejudice correspondence, but the “without prejudice” rule is a rule of evidence and does not prevent publication. This was, again, false, and an attempt to mislead. However, it is more serious than that: it is an aggressive and intimidating threat (“That would be a serious matter as you know.”).
15. The second Osborne Clarke communication, SRA3, also seeks to intimidate me into not publishing the letter. It asserts that doing so would be “improper” (paragraph 1.3) but does not give a legal rationale for this claim – most likely because there is no such rationale.
Advancing meritless claims – false allegations
16. As you identify in your warning notice, a common characteristic of SLAPP pre-action correspondence is that it advances meritless legal claims.
17. The entirety of the first Osborne Clarke email (SRA2) is meritless. The central allegation is:
“You have relied on comments attributed to YouGov by The Times today to support your view that our client was lying about the extent of involvement of our client’s father in the very early days of YouGov when it was set up in 2000.”
18. This misrepresents the comments I had made. I had specifically alleged that Mr Zahawi lied when he claimed that his father provided startup capital to YouGov (his first explanation). I did not allege that Mr Zahawi’s subsequent explanation was a lie (the second explanation – that Balshore Investments acquired its shareholding because Mr Zahawi’s father was so involved in the running of the business).
19. It is hard to imagine a more meritless defamation action than complaining about an allegation that was not in fact made.
20. The Osborne Clarke email (SRA2) at no point attempts to respond to my actual allegation. The closest it comes is by saying I omitted to reference that Mr Zahawi’s father paid £7,000 for his second tranche of shares. But I clearly did mention this, in both my Twitter thread (https://taxpolicy.org.uk/evidence) and my longer article (https://taxpolicy.org.uk/zahawi-capital/). The lack of attention Osborne Clarke paid to the facts evidences recklessness and/or a lack of interest in the merits of the case, both of which are identified in the SRA “conduct in disputes” guidance as unacceptable behaviour.
Advancing meritless claims – no legal basis
21. Your risk warning specifically mentions cases where a solicitor pursues a claim despite knowing that a legal defence to their claim will be successful.
22. At the time, Nadhim Zahawi was Chancellor of the Exchequer. It is hard to imagine a topic of higher public interest than an accusation that the Chancellor of the Exchequer had avoided tax and lied about it. Hence Osborne Clarke would have known that a public interest defence under section 4 of the Defamation Act 2013 would likely have been successful. It is notable that their communications do not mention the public interest defence.
Advancing false factual claims
23. Another common element of SLAPP pre-action letters is for the solicitor to advance factual claims by their client which are false, and which the solicitor should know are likely false. As your guidance notes, solicitors should take reasonable steps to satisfy themselves that a claim is properly arguable before putting it forward.
24. In this instance, both Osborne Clarke communications (SRA2 and SRA3) assert that Balshore provided £7,000 of startup capital for the YouGov shares it acquired in 2000. See, for example, paragraph 2.4 of SRA3.
25. However, the Companies House form for the share issuance shows that it was signed in October 2002, but backdated to 2000 (see attachment SRA8). My review of YouGov’s accounts and other Companies House filings confirm that the £7,000 was paid in 2002, not 2000 (I can supply evidence of this if that would be helpful).
26. Hence the key factual component of the Osborne Clarke letters was false. Osborne Clarke cannot have made any attempt to verify the matter (given that a cursory review of the Companies House form would have immediately revealed the backdating).
27. There is no duty on a solicitor to conduct detailed due diligence to fully investigate a client’s factual assertions. However, where the solicitor is going to assert factual matters in a letter to a third party, as a central part of a threatened claim against the third party, the solicitor should have some proper basis for doing so. The solicitor’s duty to the third party and the rule of law mean that the solicitor cannot simply advance any factual assertion made by his or her client, without the slightest investigation. A solicitor is not a mere post-box, particularly when serious allegations of defamation are being made. The failure of Osborne Clarke to make any checks on the claim was reckless and a breach of the SRA Principles.
28. The breach subsequently became more serious. I drew Osborne Clarke’s attention to the falsehood of the £7,000 claim, but (now knowing it was likely false) they did not correct the record. At that point Osborne Clarke became complicit in misleading me. I discuss this further below.
No intention of actually commencing litigation
29. A further common characteristic of SLAPPs (mentioned in your guidance) is where a solicitor is acting in a public relations capacity, with a legal veneer but no actual legal content. One example of this is where a solicitor makes a threat of a defamation lawsuit which is a “bluff”. The solicitor and client have no intention of filing an actual defamation claim, either because the client’s case is too weak (for example because the honest opinion or public interest defences will apply), or because the claimant would not want to run the risk of pre-trial disclosure or cross-examination during trial. The solicitor therefore engages in purported pre-action correspondence with the aim of intimidating the recipient into withdrawing their accusation. This is abusive behaviour, damaging to the rule of law. When combined with mislabelling, the overall effect is that people are silenced, with no way for the public or the judicial system to ever know about it.
30. It will often be hard to judge whether a solicitor’s correspondence falls within this category. This, however, is an unusual case where we can be confident that it does. The key sentence in Osborne Clarke’s email (SRA2) reads:
“Should you not retract your allegation of lies today, we will write to you more fully on an open basis on Monday.”
31. The natural reading of this is that, if I did not retract, Osborne Clarke would send me a pre-action letter, with a view to subsequently commencing defamation proceedings. However when I did not retract, I did not receive a pre-action letter. Osborne Clarke’s subsequent letter (SRA3) is explicit that it is “not a threat to sue for libel”. And when I still did not retract, I received no further correspondence (and no libel claim has been forthcoming).
32. Hence, the evidence suggests that Osborne Clarke was bluffing: this was pre-action correspondence as an end itself – a SLAPP, and a breach of the SRA Principles. It was, perhaps, not pre-action correspondence at all – but Osborne Clarke acting in a “reputation management”/“public relations” capacity of the kind that your 28 November warning identifies.
33. It may be that, if you review Osborne Clarke’s files, you will find that Mr Zahawi had told Osborne Clarke he had no intention of commencing proceedings.
Reason for writing
34. I had not intended to make a formal complaint about Osborne Clarke. However, their behaviour since I called their “bluff” has evidenced a serious misunderstanding of a solicitor’s professional duties and obligations:
35. I wrote to Osborne Clarke on 19 August 2022 (attachment SRA4) alerting them to the fact that their central claim about the £7,000 was false, and inviting them to correct the record.
36. Their response on 25 August 2022 did not address the point (attachment SRA5).
37. I responded on 31 August 2022 (attachment SRA6) making clear that I expected Osborne Clarke to address the three falsehoods in their correspondence: the false claim Balshore had provided £7,000 of capital, the false claim of confidentiality, and the false claim that the “without prejudice” rule prevented publication. I invited them to justify or withdraw their claims, and pointed out that it was not open to a solicitor to make a false statement and, knowing it was likely false, fail to correct it. Whilst Osborne Clarke may originally have made a mistake, or been reckless, in presenting the false £7,000 claim, at the point they realised it was likely false, and failed to correct the record, they became complicit in misleading me.
38. Osborne Clarke responded on 8 September (attachment SRA7). On my first point (the £7,000 of capital), Osborne Clarke simply said that their professional conduct rules prohibit them from discussing client confidential matters. This is a non-sequitur. If the solicitor becomes aware that he or she has (intentionally or unintentionally) misled a third party then the solicitor must correct the record – otherwise the failure to correct is itself a breach of the SRA Principles. Client confidentiality will in most cases not prevent such a correction (the duty of confidence will not apply if the solicitor is being asked to perpetrate a falsehood). But if there is a conflict then client confidentiality does not simply override other SRA Principles; the solicitor is then faced with a serious ethical dilemma which the solicitor may only be able to resolve by ceasing to act for the client. Osborne’s Clarke’s response was unacceptable.
39. On my second point (the false assertions of confidentiality and without prejudice), Osborne Clarke said that they would address their responses to the SRA. Again, this is a non-sequitur. A solicitor’s duty not to mislead a third party is not owed to the SRA; it is owed to the third party.
40. I had hoped Osborne Clarke would correct the record of their own accord, and I would not need to refer the matter to you. Unfortunately, it is clear they will not do so – it is for that reason I have written this letter.
Wider implications
41. It is my understanding that the key features of Osborne Clarke’s correspondence are commonplace: false assertions of confidentiality and “without prejudice”; an attempt to intimidate the recipient into not publishing the letter; basing a libel threat on a client’s assertion of facts without any attempt to very if those facts are correct.
42. I would, therefore, ask you to review other defamation matters where Osborne Clarke was instructed, to ascertain if they have indeed breached the SRA Principles on other occasions (it may be that this is already underway as part of your thematic review into SLAPP).
43. You will appreciate that I was a very atypical recipient: as a former partner in a large law firm I had the legal knowledge to identify that the claims being made were false, the contacts to obtain expert advice, and the financial resources to pay for that advice. Osborne Clarke’s actions caused me to incur unnecessary legal fees, but had no other adverse consequences and I was not, in the end, silenced.
44. I expect many other recipients of these letters did not have those advantages, and were silenced by meritless claims of confidentiality. The damage to the profession and the rule of law can only be undone if these letters can be identified, and Osborne Clarke and/or the SRA then writes to the recipients making clear that the confidentiality assertions were false. Whether Osborne Clarke’s client permits them to do so is irrelevant: a solicitor’s public interest obligations override their duty to their client.
45. If there is indeed a pattern of behaviour of Osborne Clarke falsely labelling as confidential/without prejudice letters to unrepresented parties, making meritless claims, and making false assertions of facts, then I would ask that you bring Solicitors Disciplinary Tribunal proceedings against Osborne Clarke, and seek the most serious sanctions against those involved.
46. Do please let me know if I can be of any further assistance. I would ask that you contact me by email rather than by post.
Yours sincerely
Dan Neidle
Photo of Nadhim Zahawi by Richard Townsend
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The SRA stops secret libel letters
The SRA has warned solicitors to stop sending libel letters which falsely claim to be confidential, and mustn’t be published. This should dramatically change the landscape for everyone from large newspapers to individual tweeters and bloggers. It’s now up to us to take advantage of it.
Back in July, the Chancellor of the Exchequer instructed lawyers to write to me, accusing me of libel and requiring me to withdraw my allegation that he had lied. They claimed their letters were confidential, and warned me of “serious consequences” if I published them. This was tosh. I did not retract, and I published the letters.
I don’t think of myself as particularly naive, but was shocked to discover that fibbing about the confidentiality of libel threats is standard practice in the libel world. It has a chilling effect on free speech in this country – the rich and powerful can silence their critics so completely that we don’t even know they’ve been silenced. It’s a hallmark of SLAPPs – “Strategic Lawsuits Against Public Participation” – which have become distressingly common.
It may come as a surprise to many people, but solicitors are not allowed to tell fibs. The Solicitors Regulation Authority requires solicitors to behave in accordance with the SRA Principles: to act with honesty, integrity, independence, and to uphold the rule of law. Intimidating people into not publishing letters they are perfectly entitled to publish is the very opposite of these Principles.
So I wrote to the Solicitors’ Regulation Authority, asking them to end the practice of solicitors making phoney claims of confidentiality in libel letters. The SRA sent me a promising initial response. At the same time, the Anti-SLAPP Coalition have been pushing for both strong SRA guidance and a change in law – so I am playing a small part in a much wider campaign1
Yesterday the SRA published their final guidance on SLAPPs – and it could not be clearer. Lawyers cannot attempt to prevent the publication of their libel letters by claiming the letters are “confidential” or “without prejudice” without very good reason.
Here’s the key section:
We expect you to ensure that you do not mislead recipients of your correspondence, and to take particular care in this regard where that recipient may be vulnerable or unrepresented.
One way this can happen in this context is by labelling or marking correspondence ‘not for publication’, ‘strictly private and confidential’ and/or ‘without prejudice’ when the conditions for using those terms are not fulfilled.
We accept that marking a letter with such terms might be necessary if (for instance) an individual needs to disclose private and confidential information in order to disprove facts intended for publication [Dan note: these cases are rare – there was a reason my example involved a rampaging rhinoceros]. If so, it might also serve a purpose in ensuring correspondence is not read by an unintended recipient and/or to inform the recipient that they cannot rely on the defence of consent if they choose to publish any of the relevant material. Recipients might also properly be warned as to the legal risks of publication of such correspondence (which may include aggravation of any damages payable).
However, you should carefully consider what proper reasons you have for labelling correspondence in these ways, and whether further explanation is required where the recipient might be vulnerable or uninformed. Such markings cannot unilaterally impose a duty of privacy or confidentiality where one does not already exist. Clients should be advised of this and warned of the risks that a recipient might properly publish correspondence which is not subject to a pre-existing duty of confidence or privacy.
…
Equally, correspondence should not be marked as ‘without prejudice’ if that correspondence does not fulfil the conditions for that label. You should consider whether the communication represents a genuine attempt to compromise an existing dispute. There should ordinarily be no need to apply it to correspondence which does not offer any concessions and only argues your case and seeks concessions from the other side.
Now compare this with what I received from Zahawi’s lawyers, Osborne Clarke:
“It is up to you whether you respond to this email but you are not entitled to publish it or refer to it other than for the purposes of seeking legal advice. That would be a serious matter as you know.”
And then:
“You have said that you will not accept without prejudice correspondence and therefore we are writing to you on an open, but confidential basis. If your request for open correspondence is motivated by a desire to publish whatever you receive then that would be improper. Please note that this letter is headed as both private and confidential and not for publication. We therefore request that you do not make the letter, the fact of the letter or its contents public.”
I have given Osborne Clarke several opportunities to retract these false claims, and they have declined. I will therefore be writing to the SRA to make a formal complaint. I would urge everybody who’s received a libel letter falsely labelled as confidential/without prejudice to take similar action. This is whether you received the libel letter this morning or ten years’ ago, and whether you’re the Financial Times or a Twitter account with 20 followers2. And what action should someone in this position take, particularly if they don’t have access to legal advice? There’s very good news on that front coming soon – I’ll be writing on this in the next few days.
The point isn’t to be vindictive, it’s to change the whole risk/reward calculation for libel lawyers and their clients. Once the wealthy and powerful know they can’t stop a libel threat being published, and there’s a high risk it will receive more publicity than the original accusation, then suddenly the whole idea of sending it becomes less appealing.
If you want to threaten someone with libel: fine3. But you’ll have to face the consequences of everyone knowing what you’re up to.
But this only works if we – the recipients of these letters – act. And that’s about to become a whole lot easier. More to follow!
Photo from the Anti-SLAPP Coalition conference on 28 November 2022, where I was kindly invited to speak on a panel.
Footnotes
And also important to thank everyone who has personally helped me – tax accountants, lawyers, QCs, academics, experts on confidentiality and privilege etc etc – a huge amount of generosity from a large number of people, most of whom I cannot name, but all of whom I’m immensely grateful to. ↩︎
This is not a theoretical example; after my experience, I was inundated with messages from people with small blogs and Twitter followings who had been at the receiving end of SLAPP letters ↩︎
Actually not fine; I tend to think libel law should only apply to the most serious of deliberate lies ↩︎
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Autumn Statement proposals: ten good, three bad, three meh
If some idiot was to make me Chancellor, I’d do something like this, none of which are likely to actually happen:
- Announce that, when fuel prices return to normal, there will be a retrospective windfall tax on the energy sector raising a target £30bn. But absolutely don’t announce any further details. More on the design principles here.
- Follow Nigel Lawson’s lead, and raise the rate of capital gains tax so it is equal to the rate on income. Raises at least £8bn.
- Abolish the non-dom regime and replace it with a straightforward exemption on foreign income/gains for the first three years after people come to the UK. Will be more useful to the workers we want to attract than the current mess, but won’t enable oligarchs and oil sheikhs to live in the UK tax-free. Plausibly raises £2bn.
- Close the stamp duty loophole that means most commercial real estate is bought and sold inside “special purpose companies” so that no stamp duty is paid. Will probably raise at least £1bn.
- Raise the annual tax on homes held in companies – ATED. Should yield £200m.
- Eliminate the tapers and clawbacks that result in anomalously high marginal income tax rates of well over 50% and sometimes higher than 90%. Pay for it by increasing the additional 45p rate, or reducing the threshold at which it applies.
- Scrap/cap over-generous inheritance tax exemptions, and use the revenues to reduce the rate from 40% to around 25%.
- Pensions tax relief costs over £48bn, with most of the benefit going to highest earners. Capping relief at 30% should raise at least £2bn1.
- Announce the long-term objective of ending employer’s national insurance, so that all income is taxed at the same rate. This will mean tax-cuts for employees, and tax rises for others – but it will benefit the economy as a whole.
- Start a review of other features of the tax system that penalise growth: top of the list, the high VAT threshold and the never-ending changes to corporation tax rates and reliefs.
On the other hand, here are some things the Chancellor will probably do, and which are neither brilliant nor terrible:
- Let fiscal drag collect an additional £30bn of tax with minimum political pain. The easiest way to collect lots of tax is to tax everyone, and this certainly does that. And conventional wisdom is that voters don’t notice fiscal drag; but until this year it was also conventional wisdom that voters don’t notice rises in national insurance.
- Lower the threshold at which the 45% additional rate applies. As Arun Advani points out here, this is something of a “poll tax” on moderately high earners, as it has the same cash impact on someone earning £150k as it does on someone earning £1m.
- Slight expansion of the existing windfall tax, perhaps extending it past 2025. It’s a poorly designed tax, and we’d be better off replacing it, but the case for taxing people who’ve obviously made a windfall is politically and practically irresistible.
And here are some things we absolutely shouldn’t do:
- Change the tax treatment of already-existing pensions or ISAs. People used these products believing they worked a particular way. It’s unfair, and will damage faith in the tax system and savings vehicles as a whole, if we change the rules of the game after people start playing.
- Introduce a wealth tax. Almost all previous wealth taxes around the world have failed, raise little/no revenue, or both. Most wealth tax proposals ignore this, and can be discarded as unserious populism. The few that are intellectually rigorous end up being politically unfeasible (because they tax pensions and homes).
- Create more points in the income tax/national insurance system where the marginal rate is over 50%. Chancellor Neidle would impose a 200% wealth tax on anyone proposing tax changes without saying precisely what they mean in terms of marginal rates.
Any other suggestions?
Image by DALL-E: “a tree in autumn, with its branches covered in brown leaves and one dollar bills, digital art”
Footnotes
Source: HMRC statistics and my napkin ↩︎
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The first thing we do, let’s tax all the lawyers.
The UK taxes high-earning lawyers less than bankers. That’s irrational – and illustrates a wider problem with the tax system. It’s hard to change, but we’d all benefit if we taxed all income in the same way.
Here’s the problem:
- A City law firm has £100m of profits to share between 100 partners.1 The tax consequence: each partner has gross income of £1m on which they pay £435k income tax2, plus £35k national insurance3. So the lucky partners take home £530k4, and lucky HMRC collects £47m.
- A bank has £100 million of profits to share between 100 traders. The tax consequence: the bank pays employer’s 13.8%5 national insurance, leaving £87.9m for the bankers.6 So each banker has a gross income of £879k, on which they pay £380 income tax and £21k national insurance. So the poor bankers take home £477k, and even more lucky HMRC collects £52.3m.
The lawyers have an overall effective tax rate of 47%; the bankers’ rate is 52.3%. That is an odd and irrational result.
Why does it happen? The simple reason is that partners in a law firm are not employees, and so there’s no 13.8% employer’s national insurance.7 This isn’t tax avoidance, or even tax planning8 – it’s an inevitable consequence of the fact that our tax system puts so much weight on whether a person is an employee.
The question is whether we should change the law and tax partners in law firms and other large professional firms the same way as employees.
How much tax could we raise?
The Lawyer has crunched the numbers on large law firms, and reckon that the top 50 UK law firms and top 50 US law firms have a combined UK profit of £6.3bn, implying that if they were subject to employer’s national insurance, that would yield an additional £870m of tax.
The top 75 UK accounting firms have a profit of around £3bn, implying an extension of employer’s national insurance would yield an additional £400m of tax.
Add in management consultants, investment managers, and other large professional partnerships (whether in partnership or corporate form) and it’s realistic to think we’d be looking at between £1.5bn and £2bn of revenue.9
Should we do it?
Given the economic mess we currently find ourselves in, it’s hard to defend £1m lawyers paying less tax than other comparable professionals.
As Catrin Griffiths, editor of The Lawyer, says:
All the data points to the fact that commercial law is a highly successful UK sector that relies on an infrastructure of education, training and technology. In a climate of rising taxes for all, law firms will be increasingly challenged to consider their own financial contribution to the public finances.
Politicians may find the prospect of an easy £2bn of additional revenue tempting.
And yet I pause at the idea of creating a headline tax rate of over 50%. On the one hand, that’s already what happens – the bankers in my example above have an effective rate of 53.5%. But – and this is important – they probably don’t feel like they do.
And taxing partnerships/partners differently from companies/shareholders would be unprincipled and asking for trouble (meaning: unfair distortion and avoidance).
Wider implications – and solutions
It’s not just lawyers. The same distortions and difficulties arise throughout the economy.
We tax employment income much more than other types of income, and that creates distortion, uncertainty, and tax avoidance. I’ve no doubt that employer’s national insurance is a Bad Tax and we should end it.
But if we immediately abolished national insurance, and rolled it into income tax, then I fear many people would be aghast at how much tax they were paying (even if employers passed-on the benefit of the employer national insurance cut, which is distinctly optimistic). Tax psychology is a thing, and (on the basis of no evidence) I worry about the overall economic and fiscal effects of people feeling like they’re paying more in tax than they take home. That’s not a reason not to act, but it’s a reason to be very cautious.
This is a hard problem.
There are two things that might make it easier:
- First, make the change mostly revenue-neutral. We’d be greatly expanding the base of people paying the 13.8% tax. So we don’t need the rate to be as high as 13.8% to collect the same amount. My feeling (and tax policy needs more than a feeling) is that nobody should be paying a marginal rate of over 50%.
- Second, mandate that employers pass on the savings. This would be a highly unusual thing to do, but in this circumstance, it might be realistically achievable10
This would have two effects. People who aren’t employees would see a tax rise, but it would be less than the full 13.8%. Employees would see an actual tax cut. It’s just about possible this could make the whole proposal politically feasible. Maybe.
Much better to actually fix the underlying problem than to pick on one particular sector – more principled, and much less susceptible to avoidance.
All we need is a suitably courageous politician.
Image by DALL-E: “a statue of lady justice, with a stack of dollar bills in her hand, digital art”
Footnotes
Some people unfamiliar with City law firms may be shocked at how large these figures are; some people who work in City law firms may regard this as a poor level of profitability, and possibly a failing firm. ↩︎
i.e. tending towards the 45% top marginal rate ↩︎
Tending towards the 2% marginal rate ↩︎
It will usually be less than this, because law firms – like most businesses – have non-deductible expenditure… in practice that will raise the effective tax rate by a couple of % ↩︎
There’s a good argument I should add the 0.5% apprenticeship levy, because it does behave just like another 0.5% employer’s NI. But, given it’s semi-hypothecated, I decided to leave it out. If you disagree with me on this, then that means my bigger argument has 0.5% more force. ↩︎
I made a bad mistake here, and added the 13.8% employer’s NI to the £100m. That makes no sense, because the bonus pool was stated to be £100m – the bank is going to have to use that to pay the bonuses and the employer’s NI. Now corrected! ↩︎
Some people will complain at this point that the bankers aren’t paying employer’s national insurance – so why include that in their effective tax rate? The answer is that the economic evidence suggests that, in the long run, the economic incidence of employer’s national insurance largely falls on wages. In my example it’s particularly clear – the bank has a bonus pool, and the employers are going to get what’s left after employer’s national insurance is paid – so it is directly reducing their income. ↩︎
Except when it is – see the smart comment from ‘Tigs’ below regarding salaried “partners” ↩︎
There would certainly be difficult edge cases; this post is about the principle rather than the practicality. Similarly, lots of points to think about re. non-deductible expenditure, which for some large partnerships already takes the effective rate over 50%. ↩︎
The usual problem is this: when the 5% “tampon tax” was abolished, we couldn’t legally require that prices were cut by 5%, because retail prices move all the time, and it’s not possible to disentangle the tax cut from other price changes. Wages are different. It might (and this would need a lot of thought) be possible to require employers pass on an employer’s national insurance cut. That wouldn’t be a perfect solution, because an employer could pass on the cut, but at the same time scrap a wage rise that otherwise would have been paid. But it could (particularly in a time of low inflation) ensure that most of the benefit went to employees in the short term, and there’s good reason to believe that it will go to employees in the long term regardless of what we do. ↩︎
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How the abolition of the “tampon tax” benefited retailers, not women
5% VAT applied to tampons until January 2021 – then it was abolished. Many were hoping that the savings would go to women, in reduced tampon prices. Our analysis of ONS pricing data shows that no more than 1% of the VAT savings was passed to consumers; the rest – and very possibly all the saving – was retained by retailers.
Our report is available in PDF format here. An interactive chart demonstrating our conclusions is here. The Guardian report on our paper is here and the FT here.
A web version of the PDF report follows below:
Executive Summary
5% VAT applied to tampons and other menstrual products until January 2021. Then, following the high-profile “tampon tax” campaign, it was abolished. Many expected that the benefit of the tax saving would go to women, in the form of reduced prices.
However, an analysis of ONS data by Tax Policy Associates demonstrates that the 5% VAT saving was not passed onto women. At least 80% of the saving was retained by retailers (and very possibly all of it).
The key piece of evidence is this chart showing price changes before and after the abolition of the “tampon tax” on 1 January 2021. Ignoring the large spike in December 2020, average prices after the change are only slightly lower than before the change. For reasons explained further below, this likely reflects normal market movements rather than the passing on of the VAT saving.

Interactive charts that illustrate this in more detail are available here.
Background
Campaigners had been pushing for years for the 5% VAT on menstrual products to be scrapped[1]. EU law prevented this, but in 2016 the then-Government obtained in-principle agreement with the EU[2] that this would change. In the event, these discussions were overtaken by Brexit, and it was not until January 2021 that the tax was abolished. [3]
There will be widespread interest in who benefited from the abolition of the tampon tax – consumers or retailers. And there is also an important tax policy point. We have recently seen proposals that VAT or duties be reduced or removed from particular products or services (e.g. VAT on the tourism industry, VAT on petrol or fuel duty on petrol/diesel). However, these campaigns often assume that the benefit of the tax cuts will be passed onto consumers. The “tampon tax” provides further evidence that this will often not be the case.
Analysis
We used Office for National Statistics data to analyse tampon price changes around 1 January 2021, the date that the “tampon tax” was abolished. We were able to do this because the ONS includes tampons (but not other menstrual products) in the price quotes it samples every month to compile the consumer prices index. Since 2017, the ONS has published the full datasets for its price sampling. [4]
We set out our methodology below.
Qualitative analysis
Our methodology results in the above chart of tampon prices before and after 1 January 2021. The data is normalised to December 2020, i.e. the price on December 2020 is set at 100% for ease of reference – this facilitates easy comparisons between different products.
Or, over a longer period:

The charts show a 6% fall in tampon prices in January 2021 – that is largely a reversal of a 4% increase the previous month; there is then a 2.5% increase in February 2021. Overall, the average price for the period after the VAT abolition is about 1.5% less than it was beforehand.
The December 2020 price spike
It could be suggested that the 4% price rise in December 2020 was a deliberate strategy to make it look as though the 5% VAT cut was being passed to consumers the next month. However, we regard that as highly unlikely. It would require astonishing cynicism on the part of retailers. It would also suggest a degree of coordination between a large number of retailers that would be difficult to arrange in practice, as well as a flagrant breach of competition law.
As we will show below, other products also show price spikes at a variety of different times, which we expect are driven by a complex and unpredictable mixture of seasonal and situational supply/demand factors. This seems the more likely explanation. However, the fact that the December 2020 price was a “spike” means that it would be incorrect to conclude from the December and January data that tampon pricing fell by 5% when VAT was abolished.
Comparison with other products
It is insufficient to look at tampon pricing in isolation. For example, if many other consumer products were materially increasing in price in January 2021, then the absence of an increase in tampon pricing could be consistent with the benefit of the VAT abolition being passed to consumers. However, the evidence does not show this.
Our analysis includes price movements for thirteen other products that would likely be subject to similar supply and demand effects to tampons – toiletries and products made of cotton. It is important to note that none of these projects were subject to VAT changes over the period in question. Hence, if the benefit of the VAT abolition was passed on to consumers, we would expect to see a significant divergence between price changes in tampons and price changes in the other products. We do not.
This chart compares price changes in tampons (the red dotted line) with price changes in tissues (the blue line).

The two datasets seem reasonably correlated on either side of 1 January 2021 (with the exception of a large spike in tissue pricing in December 2019, and another spike at the start of the data in December 2017). If the benefit of the tampon VAT abolition was passed onto consumers we would expect a divergence between the two datasets after 1 January, as tampon prices fell but tissue prices did not. However, we see no such effect.
This chart compares tampon pricing (red dashed line) with t-shirts (cyan line). T-shirts are largely, but not entirely, made of cotton, and therefore are in principle subject to similar demand factors:

While t-shirt pricing seems much more volatile than tampon pricing, there is again no evidence of prices diverging after 1 January 2021.
There is an interactive version of the chart here that lets the user compare tampon price movements with the other toiletry and cotton products included in the CPI, as well as the CPI itself (which, towards the end of the period covered by the chart, increases steeply as energy costs etc start to rise). Clicking on the legend on the right-hand side will add/remove additional products.
Quantitative analysis
Comparing the average change in tampon prices for the six months before the abolition to the six months after confirms what we see in the above charts – the change in the price of tampons is broadly in line with other price changes we see in products where the VAT treatment did not change:

A similar picture is apparent over a longer period:

This implies that none of the VAT abolition was passed to consumers in the form of lower prices.
What if, in the interests of prudence, we ignore the other products that showed a drop in price, and look at tampon pricing in isolation? How likely is it that the apparent 1.5% drop in price is a real effect, and not just a function of the high variability of the pricing of all of these products? Our statistical analysis (see the “methodology” section on below) suggests that, at most, 1% of the price reduction was a real effect
Conclusions
Consumers did not in fact get the full benefit of the abolition of the 5% VAT “tampon tax”. At most, tampon prices were cut by around 1%, with the remaining 80% of the benefit retained by retailers. More likely, the retailers took all the benefit – amounting to £15m each year.[5]
It is open to any retailer contesting the figures in this report to publish full data showing their pricing on either side of the 1 January 2021 abolition.
footnote Our analysis is of ONS data across retailers as a whole. It is, therefore, possible that some retailers did pass on the benefit of the VAT cut, and provided lower prices than the average figure in the data. That would, however, imply that other retailers provided higher prices. And where, as happened in at least one case, a retailer[6] announced tampon price cuts ahead of the actual abolition of the tax, that retailer should be able to demonstrate that the price cut happened, and as a result their prices remained diverged from other retailers up to (and perhaps beyond) 1 January 2021.It is our hope that the power of the “tampon tax” campaign means that public pressure will cause retailers and suppliers, at this late stage, to pass on the full benefit of the tampon tax abolition to consumers.
Policy implications
This is an unusual case where a product is specifically included in ONS data. Prices changes are not normally so visible; nor are they normally subject to this degree of political pressure.
The public and policymakers should therefore be sceptical of those making proposals for cuts in VAT and duties, particularly if claims are made that this will benefit consumers, and/or those on low incomes (that was generally not the case for the “tampon tax” campaign, which was largely argued on a point of principle). If we want to support those who can’t afford to pay, then the answer is to put cash directly in their hands (through the tax and benefits system), or in some cases (perhaps such as this) provide free or subsidised products. We should be cautious before lowering tax rates in the hope that benevolent retailers and suppliers will pass the savings on to those who need it. The evidence from the “tampon tax” is that they won’t.
Methodology
Source of data
The Office for National Statistics compiles detailed monthly price quotes for a large variety of products, and then calculates price indices for each of those products. Since 2017, this data has been published.
To assess the change in tampon prices, we extracted the ONS data from December 2017 (When the data starts) through to April 2022,[7] and consolidated the index data for tampons and another thirteen broadly comparable products. We ended in April 2022 because after that point inflation effects start to dominate (see here).
We then wrote a short python script to analyse and chart the data. This is freely available on GitHub here. For clarity, all the price indices are normalised to 31 December 2020.
T-test
The bar charts above provide a reasonably clear indication that nothing exceptional happened to tampon pricing on the six months either side of January 2021. Whilst the average price after this date was higher than the average price before, there were greater differences in most other comparable products.
Apply statistical techniques to these datasets is not straightforward given the limited number of datapoints and very high degree of volatility. It was, however, thought appropriate to run an unequal variance one-sided t-test (using the python SciPy library) to compare the pricing datasets for the six months before 1 January 2021 with those for the subsequent six months. The null hypothesis would be that the price did not change; the alternative hypothesis was that the price was lower on and after 1 January 2021.
This resulted in the following set of p-values:
Product p-value (six month t-test) Tissues-Large Size Box 0.00001 Women’s Basic Plain T-Shirt 0.00627 Boys T-Shirt 3-13 Years 0.00709 Sheet Of Wrapping Paper 0.03236 Men’s T-Shirt Short Sleeved 0.09442 Toilet Rolls 0.10948 Tampons 0.14045 Kitchen Roll Pk Of 2-4 Specify 0.53249 Disp Nappies Spec Type 20-60 0.89392 Baby Wipes 50-85 0.95865 Toothpaste (Specify Size) 0.99270 Plasters-20-40 Pack 0.99694 Razor Cartridge Blades 0.99831 Toothbrush 0.99847 As expected, the p-value for tampons is not significant (> 0.05). More significant p-values were achieved for six other products, four of which were actually significant at 5%. Those products did not receive any change in VAT treatment over the period in question so, absent other unknown factors, this should be regarded as a product of the volatility of pricing decisions in a complex market environment, as well as potentially unknown supply and demand factors.
If we look at longer periods than six months then the p-value for tampons becomes more significant (because, although the average does not change, the number of datapoints increases, and significance becomes “easier” to attain). At eight months, a significant result is achieved (p-value=0.03201), although given that more significant results are (again) obtained for other products, this result should be treated with caution.
Nevertheless, if the tampon pricing results are viewed in isolation, they are compatible with the price having decreased after 1 January 2021. We can estimate the maximum likely extent of that decrease by constructing a synthetic tampon pricing sequence, identical to the actual tampon pricing sequence but with an increase of x% from 1 January 2021. If a t-test of that synthetic pricing sequence does not provide a significant p-value then that implies that the statistically significant difference between the pre-January 2021 pricing and post-January 2021 pricing is limited to a tampon price reduction of x%.
Testing different values of x, the p-value ceases to be significant with x at 1% (p-value equal to or greater than 0.0935 for any given range of months) (the precise methodology utilised can be seen in the GitHub code).
Hence, we can conclude that there is only weak evidence of any change in tampon pricing reflecting the cut in VAT, with the greatest realistic extent of any price reduction being approximately 1%.
Limitations
The analysis in this paper is subject to a number of important limitations:
- The ONS adopts a methodology that is designed to produce statistically rigorous results across consumer prices as a whole. It is not necessarily intended to provide robust figures for changes in the price of one product. Nevertheless, around 250 tampon prices[8] are sampled each month[9].
- The prices of tampons and the other consumer goods considered in this paper will be affected by numerous factors – the supply of raw materials, energy costs, and sheer random happenstance. It is therefore unsurprising that we see a large amount of month-to-month variation in prices; this makes it difficult to identify separate real trends from noise. More sophisticated statistical methods than a t-test are therefore not helpful (difference-in-difference and synthetic control methods were attempted, but did not produce meaningful results).
- The January 2021 VAT change applied to all menstrual products,[10] however ONS data only covers tampons. It is therefore possible in principle that the benefit of VAT abolition was passed to consumers of e.g. sanitary towels, although it is not obvious why that would be the case.
Acknowledgments
Thanks to Arun Advani of the University of Warwick for his advice on statistical techniques, to Gemma Abbott for her advice on the background to the “tampon tax” campaign, and to Laura Coryton for her help and advice. Any errors in our analysis are the sole responsibility of Tax Policy Associates, as are the conclusions we draw from it.
And many thanks to the Office for National Statistics for publishing the data at a level of detail that facilitates this kind of analysis, and also for responding swiftly and helpfully to our queries.
[1] Technically VAT on tampons was not abolished – the rate was reduced to 0%. This is different from an exemption, because an exemption would mean that retailers can’t recover the cost of purchasing tampons from wholesalers, and would therefore probably result in higher consumer prices. However, in the interest of clarity, this report refers to “abolition”.
[2] See, e.g. https://www.theguardian.com/money/2016/mar/18/tampon-tax-scrapped-announces-osborne
[3] See the 1 January 2021 Government announcement: https://www.gov.uk/government/news/tampon-tax-abolished-from-today
[4] The ONS datasets can be found here: https://www.ons.gov.uk/economy/inflationandpriceindices/datasets/consumerpriceindicescpiandretailpricesindexrpiitemindicesandpricequotes
[5] Extrapolating from the £47m figure in the Government press release https://www.gov.uk/government/news/tampon-tax-abolished-from-today
[6] See https://www.expressandstar.com/news/uk-news/2017/07/29/tesco-beats-tampon-tax-with-5-price-cut/
[7] Most of that date is here, except the 2019 data which is here
[8] The full set of price quotes obtained in January 2021 is available here: https://www.ons.gov.uk/file?uri=/economy/inflationandpriceindices/datasets/consumerpriceindicescpiandretailpricesindexrpiitemindicesandpricequotes/pricequotesjanuary2021/upload-pricequotes202101.csv
[9] There are complex issues around sampling error in CPI which are outside the scope of this paper (see, for example, Smith (2021)). However, with 250 samples, the sampling error ought to be very much less than the 5% VAT reduction.
[10] The VAT term is “sanitary products” – details are in HMRC VAT Notice 701/18 – see https://www.gov.uk/guidance/vat-on-womens-sanitary-products-notice-70118
Image by DALL-E – “a pound sterling sign, £, made of tampons, digital art, on a blue background”
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The real reason your work doesn’t let you remote-work from abroad, and how to fix it
We’re delighted to publish an article on the underreported subject of tax and remote working, by Leonard Wagenaar, an M&A tax and international tax professional[1] whose insightful analysis is usually posted on LinkedIn here. This is the first in an occasional series of articles by outside tax experts – we won’t necessarily agree with every word, but we will agree that the subject is important and not currently getting enough attention.
Since the pandemic, remote work has become common. Some countries now try to attract remote workers to settle in their country, so they can work remotely internationally. Of the 27 EU countries, 11 have implemented or are considering special ‘digital nomad visas’[2]. Two of them – Greece[3] and Spain[4] – also couple this with special tax breaks for remote workers, triggering fears of a race to the bottom on personal taxes.
Although most of us can’t imagine a working environment without remote work, international remote work is still rare. New visa rules are unlikely to change that. Within the EU, there were never any visa restrictions on remote work for EU citizens. A culture of international remote work could transform the labour market. But the biggest obstacles are tax systems, even those from supposedly supportive countries.
Right now, no sensible employment contract will leave the employee free to work from wherever they want, as a travelling employee could easily trigger tax for the employer wherever they travel. That’s because countries generally tax the foreign companies as soon as they have a ‘permanent establishment’ (or “PE” for short). Generally, a PE will be triggered if someone does business for the employer through a ‘fixed place of business’. This is a concept that’s over a hundred years old and though it has developed over all those years, it clearly wasn’t designed with the digital age in mind. For instance, could a desk in your holiday home be a fixed place of business? Or the kitchen table of your friend’s uncle? How about the table in the local coffee shop? Or could the ‘fixed place’ even be within the work phone you carry around?[5] No one really knows.
There are plenty of guidance notes, published tax rulings and case law, but these are highly fact dependent and go in different directions. Being stranded abroad against your will in a global pandemic probably doesn’t trigger a PE, provided you at least tried to get back home[6]. If the company demands that you work remotely in another country, that’s likely a PE[7]. Having an office abroad and not using it is not a PE[8]. But the typical basic remote worker fact pattern? No one really knows. Countries can apply other tests to answer this question, such as “is the home office at the disposal of the employer?” or “does the employer have the ability to exclude people from the home office?”. But generally, these tests replace one obscure question with another.
The longer a fact pattern continues, the higher the risk of a “fixed place of business” PE. The threshold is usually set at three months. But there are exceptions to this too, especially if the activities abroad repeat themselves after interruptions. And if one remote worker leaves the country, but another enters around the same time, does that reset the clock? Does it matter whether the second employee visits the same place or does similar activities? Again, no one really knows.
Most of the time, having or not having a PE would not impact the tax due for the employer all that much. But a PE would require the employer to register locally, run a local payroll and run expensive transfer pricing analyses to figure out just how much profit should be allocated to the PE. Any position they take will displease either their home tax authority or the foreign tax authority, meaning they will live with a significant risk of challenge. So, usually, employers don’t bother and just require that they can control the employee work location, even if that’s outside the office. In the Netherlands, an employer can’t unreasonably deny a request for remote work, but they can deny such a request if someone wants to work remotely from another country.
So, in short, archaic tax rules are holding back a modern labour market. Political discussions are dominated by images of ‘digital nomads’ backpacking their way between work, the beach and travel. But the best opportunities are for people who now struggle to find suitable work due to their location. If employers could hire remote employees internationally with minimal disruption, the biggest opportunity is for areas that have been left behind economically. Remote work – including international remote work – is a tool for levelling up.
So far, countries have not felt empowered to solve this problem, but they have all the tools to do so. The definition for PE has been fixed in many double tax treaties. A multilateral solution would be most efficient, but will take a very, very long time, especially now that all international tax debate seems to be consumed by other topics[9]. In the meantime, there is plenty countries can do unilaterally. Tax treaties give countries the right, but not the obligation, to tax PEs. So, countries can apply higher thresholds than tax treaties. In other words, host countries can choose not to tax foreign companies with remote workers by issuing clear binding guidance that a home office does not trigger a PE and neither do workspaces in hotels, Airbnbs, coffee places or on smart devices, etc. [10] It would not bring the company’s overall tax burden down (not by much at least), but it would greatly reduce their compliance burden. And if it stops companies from trying to control where their employees are working from, I’m sure they won’t complain either.
This simple measure could very well be more effective in attracting international remote work than new visa categories or even personal income tax breaks. Countries can adopt this simple step without a potentially damaging tax competition that comes with offering lower personal income taxes. After all, they can still collect all personal income taxes from the remote workers. It is all possible. But is the political will there?
Photo by Glenn Carstens-Peters on Unsplash.
[1] All views are in personal capacity and do not necessarily represent those of any employer, remote or local.
[2] https://www.euronews.com/travel/2022/10/23/want-to-move-to-europe-here-are-all-the-digital-nomads-visas-available-for-remote-workers
[3] https://visaguide.world/digital-nomad-visa/greece/#:~:text=Taxes.,a%2050%25%20reduction%20tax%20program.
[4] https://www.schengenvisainfo.com/news/spain-introduces-new-visa-for-foreign-start-ups-digital-nomads-reduces-taxes-for-them/#:~:text=Digital%20nomads%20will%20also%20be,for%20up%20to%2012%20months.
[5] To my knowledge, no one is actually claiming this, but the argument would have some technical merits. Your phone might be quite small, but there was never any size limit placed on a PE. The phone doesn’t stay in one place, but neither does a market stall nor a desk in a co-working space, both cases that are readily accepted as triggering a PE, because they are part of a ‘geographical whole’. And if the phone is generally used in the same locations (as is likely), a similar argument can be made here.
[6] https://globaltaxnews.ey.com/news/2022-5117-spains-tax-authority-issues-ruling-on-remote-workers-and-permanent-establishments-during-and-after-covid-19-restrictions
[7] https://skat.dk/data.aspx?oid=2350336
[8] https://www.lindedigital.at/plink/swi
[9] https://www.oecd.org/tax/beps/oecd-releases-pillar-two-model-rules-for-domestic-implementation-of-15-percent-global-minimum-tax.htm
[10] Guardrails could be introduced to prevent wholly remote businesses to pretend that they are foreign companies. For instance, the guidance could require a PE once remote work FTE / payroll costs exceed 25% or certain fixed numbers.
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ATED – the obscure tax that nobody was supposed to pay (and why we should raise £200m of tax by increasing it)
We all pay stamp duty when we buy a house. But there’s a well-known trick: have your house owned by a company – a special purpose company that does absolutely nothing else (often called “enveloping”). Then, when you come to sell, you sell the shares in the company, and the buyer1 pays no stamp duty.2
This had been going on forever, but became widely publicised in the early 2010s. In a sane world, the “loophole”3 would’ve been closed by simply applying stamp duty to the sale of the shares. But for obscure reasons,4 the loophole was left open, but anyone exploiting it and buying residential real estate held by a company was stung with an annual tax – the “annual tax on enveloped dwellings” introduced in 2013 – ATED.
The idea was that the prospect of paying an annual tax would put people off enveloping altogether – ATED wouldn’t raise much money, but would increase stamp duty revenues. That didn’t quite happen – and ATED, the tax that nobody was supposed to pay, ended up raising over £100m each year, with around 5,000 residential properties still held in envelopes (including about 100 properties worth more than £20m).
Why are people stubbornly keeping their homes enveloped, despite ATED?
Sometimes to hide the identity of owners (whether because of security concerns or more malign reasons) – although this will now be harder to do.
Sometimes simply because ATED is way too small to undo the stamp duty saving from enveloping. The tax applies in bands like this:

This means that the gap between stamp duty and ATED is fairly dramatic, particularly at the high end.

In other words:
- Stamp duty on a £1 million house is £91,250.5 ATED at that level is only £3,800. So you could happily pay the annual tax for 24 years before your total ATED bill exceeds the stamp duty you’d have paid if the property wasn’t enveloped.6 Let’s call 24 years the “ATED break-even point”.
- Or more dramatically, stamp duty on a £25m house is over £4m. ATED is £244,750/year. So the ATED break-even point here is 17 years – i.e. you’d have to pay ATED for 17 years before the cost exceeded the stamp duty saving.
- And ATED caps out at £244,750. So once we get into truly silly money, the benefit becomes stark: stamp duty on a £100m house is a cool £17m – the ATED break-even point is 69 years.
So ATED is too low to do the job it was designed to do. The enveloping “loophole” is still worthwhile, and the more expensive the property, the more worthwhile it is.
The sensible solution is to close the loophole properly, and make stamp duty apply on the sale of companies holding residential real estate (just as I think we should for companies purchasing commercial real estate). But if we don’t want to do that (or want a stopgap while we finalise how we’re going to properly sort things out), let’s just increase ATED.
ATED currently raises £111 million, and the average ATED break-even point is about 20 years. So if we triple the rate, we can expect to raise around £200m – much of which would be in increased stamp duty revenues, as people “de-envelope”.7 That would reduce the average ATED break-even point to around 6 years, which seems a more realistic timeframe for ownership of high-value real estate. We’re not quite done: increasing ATED at each of the existing bands doesn’t solve the problem of ATED “capping-out” for very high-value properties – here, the obvious solution is for ATED to continue to apply at each additional £5m of value.8
This seems a simple, fair and straightforward-to-implement way to raise £200m. How could any Chancellor resist such a proposition?
Photo of One Hyde Park by Rob Deutscher Follow, CC BY 2.0 via Wikimedia Commons. Why pick a picture of One Hyde Park? No particular reason.
Footnotes
since it’s the buyer making the stamp duty saving, why does the seller go to the trouble of enveloping the property? Because in practice, stamp duty is economically shared between the buyer and the seller, and by arranging a stamp duty-free sale, you expect that you are increasing your future sale proceeds. ↩︎
If it was a UK company, there would be 0.5% UK stamp duty/stamp duty reserve tax. So all envelopes are in practice non-UK companies. Do people really go to this trouble just to save 0.5%? Yes – helped by the fact that it is often cheaper to maintain an offshore company than a UK company. ↩︎
Scare quotes because I have zero interest in arguing whether or not it is really a loophole ↩︎
in large part EU law complications around the Capital Duties Directive ↩︎
This, and the other figures here, all assume that the buyer is a non-resident who already owns property ↩︎
This ignores set-up and maintenance costs; but it also ignores the time value of money, so I don’t think it’s an unrepresentative way to look at things. ↩︎
Ordinarily one worries that greatly increasing a tax will take it past the “revenue maximising” point, and actually reduce revenues (as well as do economic harm). Here we can be reasonably relaxed, because the unusual nature of ATED means that the revenue-maximising point will be where the level of ATED exactly equals the benefit that people receive from enveloping. This can’t realistically be calculated, because it will vary dependent on personal circumstances. But the important thing is that people always have an escape route – they can “de-envelope” and suffer stamp duty on their sales instead of ATED – so there shouldn’t be a risk of damaging revenues or the housing market by setting ATED too high (even if the ATED rate was set at $100bn, we would remain at (and not past) the revenue-maximising rate) ↩︎
Of course one could instead have a percentage charge, but that then creates a need for precise valuation, which is probably just justified given the small scale of this tax ↩︎
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How to raise £1bn by closing a stamp duty “loophole”
1You’re about to sign on the purchase of the Oblong – a £1bn glass monolith in the centre of the City of London. The handy HMRC calculator tells you if you execute a deed purchasing The Oblong, you’ll owe a neat £50m in SDLT.
How do you avoid the tax?
Well, as it happens, The Oblong – like almost every other serious bit of commercial real estate2 in the UK – is owned by a company – Oblong Propco Limited. This isn’t the normal kind of company that does a bunch of different things, but a “special purpose vehicle” (SPV) whose only activity is holding The Oblong, signing leases with tenants, and so forth.
After a quick chat with your advisers you realise that, on reflection, you love The Oblong so much that you’ll buy the company. Instead of paying £1bn for the land, you pay £1bn for Oblong Propco Limited, and The Oblong will come along with it.
Funny thing is, whilst the rate of stamp duty on land is 5%, the rate on shares is 0.5%. Funnier still, that’s shares in *UK* companies, and Oblong Propco Limited is incorporated in Jersey. So you pay nothing.3
Is this tax avoidance?
You clearly are avoiding SDLT, in the value-free sense of not paying SDLT that you would pay if you did something else. But is it “tax avoidance” in the way that term is usually used?
The thing is, you’re not doing anything remotely naughty. You could buy the land directly. Or you could buy the company. It’s a free choice. In many ways it’s more convenient to buy the company; it may have ancillary contracts (like window cleaners and security guards), and your bank may prefer to lend to a nice clean SPV and not a complex company with lots of different creditors. You’re just choosing to do the transaction in a particular, not remotely unusual, way.
For this reason, it’s not “tax avoidance” within any of the technical rules that could enable an HMRC challenge, and so this is as close to a dead cert as tax planning ever gets.
By way of comparison, here’s what would be tax avoidance. Say the current owners hold The Oblong directly, and not in an SPV. They want to sell free from SDLT (because part of the benefit will go to them in increased sale price). So, just before they sell to you, they transfer The Oblong into a new SPV and then sell you the SPV. That kind of game was stopped years ago, and now doesn’t work for a whole bunch of reasons – so HMRC would get their SDLT. But if the owners moved The Oblong into the SPV more than three years before they started talking to potential purchasers, then these rules won’t apply.
Is this a loophole?
The term “loophole” suggests something secret and clever, which only a few special people know about. Everybody in the real estate world knows you sell companies if you don’t want to pay SDLT. That includes HMRC. Most people would say it’s a loophole. Tax advisers and people in the real estate industry would disagree. But in my view, it’s an irrational limitation on stamp duty that shouldn’t exist. I’ll call it a “loophole” in scare quotes… but what we call it is much less important than what we do about it.
What do other countries do?
Spain, Germany, France, Australia… most countries that have a tax on land transfers also apply it to the sale of shares in SPVs holding land. Because it’s such a bloody obvious way to avoid tax.
What should we do about it?
There’s no technical barrier to charging SDLT on property SPVs. We even have legislation we could use to do it – we could copy and paste from the rules created a few years ago to charge capital gains tax on people selling property SPVs (“property rich companies“).
How much tax would we raise if we did that?
There are, as with many tax questions, no figures available that let us estimate this with any accuracy. However, there are around £60bn of commercial real estate transactions a year. What proportion of those involve shares in SPVs, rather than dealing in the real estate directly? There is no data available,4 but on the basis of my experience, I would say that it is likely, by value, the majority. It would be surprising if the revenues were less than £1bn (i.e. because if only 1/3 of these real estate transactions are currently in SPVs, changing the law would yield £60bn x 1/3 x 5% = £1bn).
People could still use SPVs to hold real estate – and in many cases that would still make sense. But we’d be taxing SPV transactions in the same way as land transactions – and taxing economically similar transactions in a similar way is good tax policy.
Before Brexit, EU law made it difficult in practice to impose SDLT on SPV shares without huge loopholes5. But that’s fallen away – a true Brexit dividend.
So what’s stopping us now?
Gherkin photo by Ed Robertson on Unsplash
Footnotes
This is an updated version of my old post ‘how to avoid stamp duty’ ↩︎
This trick used to work for residential real estate, but now kinda mostly sorta doesn’t, because of ATED – I’ll write about that soon ↩︎
This is, I hope obviously, not legal advice. ↩︎
As far as I know, but if you can point me towards anything I would be most grateful ↩︎
Problem was that the Capital Duties Directive meant we couldn’t charge SDLT on the issuance of shares. So people could have responded to SDLT on the transfer of SPV shares by instead issuing new shares to the purchaser, and repurchasing/cancelling the shares of the seller. Why doesn’t EU law stand in the way of the French, German etc taxes applying to sales of shares? It’s one of life’s little mysteries. ↩︎
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Rishi Sunak, Akshata Murty, and two big tax loopholes
Rishi Sunak’s wife, Akshata Murty, probably – by complete accident – benefits from an obscure inheritance tax loophole worth £240m. It is possible that – by design and not accident- Ms Murty has arranged her affairs to benefit from an unrelated income tax loophole worth £5.5m each year. Mr Sunak should, in the interests of transparency, confirm whether his family in fact benefits from these loopholes. And – whether he does or not – these loopholes should be closed.
Akshata Murty holds 0.93% of the shares in her father’s IT company, Infosys.1 Given the company’s current market capitalisation is $77bn, that implies – ignoring all Ms Murty’s other assets – she is worth at least £600m, and is receiving about £14m of dividends each year2.
That would normally have two tax consequences:
- Ms Murty pays around £5.5m of UK income tax each year on her £14m of dividends.
Ms Murty’s tax status
Akshata Murty is a non-dom, and has historically claimed the “remittance basis”. Which means she wasn’t taxed in the UK on her £14m of annual dividends (and her tax was likely limited to a 10% Indian dividend withholding tax). Mrs Murty agreed earlier this year to stop claiming the remittance basis.
But she remains a non-dom. That has some interesting consequences.
The accidental £200m inheritance tax loophole
As a non-dom, Ms Murty’s estate isn’t subject to inheritance tax on her Indian shares. But good things don’t last forever – non-doms lose that benefit after being resident in the UK for 15 years. That probably gives Ms Murty about five more years before her estate becomes taxable.3
Except it won’t.
There’s an obscure loophole in a 1950s tax treaty between the UK and India.4 The effect of the treaty is that an Indian non-dom like Ms Murty is never subject to UK inheritance tax. The 15-year rule that applies to everyone else5 doesn’t apply to Indians.
Why this weird result? Because, in the 1950s, India and the UK had similar estate duties, and it was perfectly rational for UK-domiciled individuals to pay only UK estate duty, and Indian-domiciled individuals to pay only Indian estate duty. The problem is that India abolished its estate duty in the 1970s, so the treaty now serves no rational purpose – it just creates a loophole for UK resident Indian domiciled individuals.
It’s not up to Ms Murty whether to claim the treaty, and she’s not remotely to blame for being a non-dom or having a potential treaty claim. But the result is inequitable. The treaty should be scrapped and the loophole closed.6
The potential £5.5m income tax loophole
Non-doms aren’t taxed on their foreign income and gains – so until earlier this year, Ms Murty escaped around £5.5m of annual income tax on her Infosys dividends.
Like inheritance tax, the income tax benefit ends after 15 years. However, there is a very common practice amongst non-doms of putting their assets into an “excluded property trust” before the 15 years are up7. The effect of the trust is broadly that the benefit of non-dom status lasts forever. I’ve no evidence Ms Murty put such a trust in place,8 but it is sufficiently common – indeed almost universal – planning for wealthy non-doms9 that it’s fair to ask the Sunaks to confirm, in the interests of transparency, whether she did.
My view is that excluded property trusts are a loophole that should be closed (ideally as part of a wider reform of non-dom rules). If the Prime Minister’s family take advantage of the loophole then that argument becomes all the more powerful.
Has Rishi Sunak himself avoided tax?
There was a report in the Independent that Rishi Sunak was listed as a beneficiary of two offshore trusts. Sunak denied this very clearly in an interview with Andrew Marr, and – whilst am sure the Independent was acting in good faith – there is nothing in Sunak’s background or history that gives me any reason to doubt his denial.
There was a report on Channel 4 that, when Sunak was a hedge fund manager, he was involved in tax avoidance. I investigated this and concluded that he had done nothing wrong, and that the Channel 4 report was misleading.
Photo by Simon Walker / HM Treasury – Flickr, OGL 3
Footnotes
See Infosys’s most recent disclosures, page 3, about 2/3 of the way down ↩︎
That’s just taking the five-year average dividend yield of 2.36% and multiplying it by the £600m holding ↩︎
You might think a relatively young couple like the Sunaks wouldn’t be thinking about inheritance tax; but in my experience the very wealthy absolutely do from an early age. ↩︎
Enacted by The Double Taxation Relief (Estate Duty) (India) Order 1956. ↩︎
At least I don’t believe other countries have equivalent treaties; there is a similar treaty between the UK and Italy, but in practice that has no effect ↩︎
Final point of detail: if the treaty didn’t apply, it’s possible that Ms Murty’s holding in Infosys would benefit from business relief. The relief is intended to apply to unlisted companies, and so excludes shares listed on a “recognised stock exchange”. Infosys shares are listed on the Bombay Stock Exchange and the National Stock Exchange of India, which are not recognised stock exchanges. Infosys has also listed ADRs, which are listed on NASDAQ; however it appears that Ms Murty holds actual Infosys shares, and not ADRs. ↩︎
This also has an inheritance tax benefit; but the 1950s treaty means Ms Murty doesn’t need any inheritance tax protection ↩︎
Infosys’ disclosure shows the shares held in Ms Murty’s own name, which on its face suggests there is no trust. However, it is possible Indian disclosure rules “look through” trusts; a more paranoid possibility is that Miss Murthy holds the shares as a nominee for a trust, so that the trust does not become publicly disclosed ↩︎
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Nadhim Zahawi – another baseless libel threat
Yesterday, Nadhim Zahawi responded to an innocuous tweet with a libel threat. He refuses to answer any of the many, many questions about his tax affairs. The inevitable conclusion I and many others will reach is that he has something to hide.
UPDATE 31 January 2023: when I received the email below forcibly denying that Zahawi was the subject of an HMRC investigation, I had no idea that Zahawi was not only fully aware of an HMRC investigation, but had recently settled it and paid a large penalty. It seems most unlikely his lawyers knew that. Zahawi probably lied to them. The whole episode is extraordinary.
During the two-hour window between knowing Kwasi Kwarteng had been fired as Chancellor, and knowing Jeremy Hunt had been appointed as his successor, there was some speculation that Nadhim Zahawi was about to be appointed. I posted this tweet:

Fortunately I was right, and she wasn’t. But two hours later, I received this email:

When I was a trainee lawyer, assisting in some long-running piece of litigation, I drafted a response to the other side. I said I was “astonished” at some point they were asserting. The senior partner supervising me was not impressed. “We are never surprised, astonished, perplexed, amazed, stunned or shocked”, he said. Lesson learned.
Well, I am surprised, astonished, perplexed, amazed, stunned and shocked at this email.
The story that Zahawi was under investigation by the NCA was first reported by the Independent. The Guardian then ran another story, apparently independently sourced, that the Cabinet Office’s propriety and ethics team alerted Boris Johnson to an HMRC “flag” over Zahawi before his appointment. The Times then reported that HMRC launched an enquiry after being passed information by the NCA. This has all been widely covered elsewhere. It is surprising, astonishing, perplexing, amazing, stunning and shocking that Zahawi or his lawyers think it can possibly be defamatory to refer to these reports. All the more so when, so far as I am aware, he has taken no action against any of the newspapers involved.
It is also wrong in law1. A statement is only defamatory if it causes “serious harm” to the reputation of the claimant. These newspaper allegations may well have caused “serious harm” to Mr Zahawi. My repeating them does not – it is a drop in the ocean of harm that Mr Zahawi’s reputation has suffered.
Furthermore, there is a clear and compelling public interest in allegations that a former Chancellor (and current rather less important Chancellor) is under criminal investigation. Before the Defamation Act 2013, tough luck – public interest was no defence to a defamation claim. But, unless my watch has stopped, it is not 2013, and it is.
And my view that Mr Zahawi is almost certainly under investigation by HMRC is informed by my experience as a senior tax lawyer, and head of UK tax for one of the largest law firms in the world, as well as the discussions I’ve had with other tax experts and retired HMRC officials. This is far from being wild speculation. If media reports are correct, then HMRC already had an investigation running at the point I and others started writing about Mr Zahawi’s tax affairs. If the reports are not correct, then HMRC would almost certainly have started an investigation at some point around July 2022 (as if there are credible public reports that a wealthy and high-profile individual may have avoided or evaded tax, then HMRC will normally commence an investigation). There is no reason Mr Zahawi would know about it. An “investigation” is not a formal legal step: it happens behind closed doors, and the taxpayer is not informed. At some point, HMRC would often (but not always) write to the taxpayer raising any questions that the investigation has raised (but would normally not use the word “investigation”). If HMRC then concludes they have enough to launch a formal enquiry then it’s at that point Mr Zahawi would be informed, with the word “enquiry” likely used – and the way that HMRC deadlines work mean that it’s likely they would do so in December 2022 or January 2023.
So I cannot be certain, as a strictly factual matter, that Mr Zahawi is under HMRC investigation – nobody outside HMRC can be. It is, however, my expert and informed opinion that he is almost certainly under investigation (whether he knows it or not). And that is absolutely a matter of public interest. And, unless it is 2013, “honest opinion” and “public interest” are both defences to defamation.
All this means that the email from Mr Zahawi’s lawyers asserts, rather aggressively, legal claims that are baseless, and which a few minutes’ research would have shown to be baseless. These arguments are not particularly obscure or difficult to identify. A couple of good Google searches would have done the trick. But I don’t think Mr Zahawi or his lawyers cared – the point of the email was not to assert a legitimate legal claim, but to stifle public discussion of his affairs. It was, in other words, a SLAPP – a “strategic lawsuit against public participation”. Here’s an excellent summary of what that means:
Strategic Lawsuits Against Public Protection, or SLAPPs, are a growing threat to freedom of speech and a free press – fundamental liberties that are the lifeblood of our democracy.
Typically used by the super-rich, SLAPPs stifle legitimate reporting and debate. They are at their most pernicious before cases ever reach a courtroom, with seemingly endless legal letters that threaten our journalists, academics, and campaigners with sky-high costs and damages.
SLAPPs pile on the pressure until investigations into corruption are shut down, and some individuals or corporations are regarded as ‘no go’ zones, because of the risk of legal retaliation.
That’s courtesy of the government, of which Mr Zahawi formed part, as part of its laudable initiative to stamp out SLAPPs. Mr Zahawi should look in the mirror.
It is unethical and improper for ACK Media Law LLP to write emails of this kind, making baseless legal threats. At a time when the Solicitors Regulation Authority has taken a strong stance against SLAPPs, it is also extremely unwise. I have therefore invited them to withdraw; if they do not, I will refer them to the SRA:

I will continue to write about Mr Zahawi, and others should too. It is in the public interest and, post-2013, it is in practice almost impossible for a senior politician to win a defamation claim on a matter of public interest. When Zahawi refuses to answer any of the many, many questions about his tax affairs, and responds to innocuous tweets with libel threats, the inevitable conclusion I and many others will reach is that he has something to hide.
Photo of Nadhim Zahawi by Richard Townshend – CC BY 3.0
Footnotes
I am not a defamation specialist. I spoken to lawyers who are (for which: many thanks). This is one of the many reasons why making baseless legal threats to senior lawyers is not the greatest idea ↩︎
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How to raise £8bn by increasing capital gains tax
The two biggest tax-cutting Conservative Chancellors in British history both increased capital gains tax – and for good reasons. Jeremy Hunt should follow them, and raise £8bn.
Here’s the current situation: someone earning £50k pays income tax at a marginal rate of 40%; someone earning £150k pays a marginal rate of 45%. But the same person making a capital gain pays nothing on the first £12,300 of gain, and only 20% on the rest. This is a problem for several reasons:
- It’s inequitable that a type of income received mainly by the wealthy is taxed less than other types of income (and particularly employment income). “Mainly” understates the case – HMRC statistics show that over half of all taxable gains are received by only 5,000 people:

£75bn of CGT taxable gain in 2020-21 – this chart shows how that is distributed between taxpayers - The difference between income tax and capital gains tax rates is so great that it creates a powerful incentive to shift income into capital. This can be done on a small level by an individual investor – for example, if you hold shares in a company or mutual fund about to pay a large dividend, then that dividend would be taxed at a top marginal rate of 39.35%. If instead, you sell the shares after the dividend is declared (but before it is paid) then you’re receiving the value of the dividend (embedded in the share price), but only paying 20% capital gains tax. It can be done on a much larger scale by a large investor, or indeed the owner of a sizeable private company.
- On a larger scale, a good chunk of the private funds industry gives its executives “carried interest” in its funds, which makes up the majority of their remuneration. This is usually subject to capital gains tax at 28% (a higher rate than usual, but still considerably less than the 39.35% dividend rate). That is inequitable. It also creates a distortion where the precise nature of an asset management business can have a dramatic effect on the tax paid by its executives1
- And finally, there’s a £12,570 personal allowance for income tax – anything below that isn’t taxed. Fair enough. But then there’s another completely separate £12,300 allowance for capital gains. Shouldn’t there be just one allowance for everything? (Perhaps with a small de minimis, say £1,000, to remove the need for filing for small gains.) Otherwise it’s just a £2.5k giveaway to investors, and one which is widely gamed.
To my mind, the case for change is irresistible.
How did we get into this mess?
Today’s CGT problems are nothing compared to how things were before 1962, when capital gains were completely untaxed. So when you see 90%+ top rates of income tax in the 1950s, you’re safe to assume that the properly wealthy took most of their returns as capital gain, and paid no tax at all. The halcyon days of progressive taxation it was not.2
Then in 1962 the second most spectacularly tax-cutting Chancellor in British history, Anthony Barber, introduced (when he was Financial Secretary to the Treasury3) a “speculative gains tax” that taxed some short-term capital gains as income (countering some of the most obvious avoidance schemes that were around at the time). Three years later, an actual capital gains tax was introduced, at a flat rate of 30%4. Again much less than the rate of tax on normal income – I’m not clear why.
The rate stayed at 30% for 20 years, with an “indexation allowance” introduced in 1982 so that inflationary gains wouldn’t be taxed. And then the absolutely most spectacularly tax-cutting Chancellor in British history, Nigel Lawson, in the absolute most tax cutting Budget in British history, increased the rate in 1988, so it applied at whatever the taxpayer’s marginal rate was. His explanation couldn’t have been clearer:

There it stayed throughout the Blair premiership.5 Then one of Gordon Brown’s big mistakes – he and Alistair Darling cut the rate to 18% in 2008. George Osborne pushed it back up to 28% in his first Budget in 2010; then cut the rate to 20% (in most cases) in 2016.
This leaves us today with the problem that Lawson thought he’d solved: a capital gains tax rate that’s often much lower than the income tax rate.
What’s the answer?
In short:
- Go back to the Lawson solution, with capital gains charged at the same marginal rate as income.6
- One exception: just as dividends are taxed at a somewhat lower rate than other income (to reflect the fact they’re paid out of a company’s post-tax profits), so capital gains in shares should be taxed at a somewhat lower rate. The obvious answer is to simply apply the relevant dividend rate.7
- Merge the income tax and CGT personal allowances. Once the allowance is used, all capital gains should be taxable (with say a £1,000 de minimis to prevent taxpayers and HMRC having the hassle of dealing with small gains).
- If we keep Business Asset Disposal Relief then there should be little/no impact on small businesses (which is where much of the debate has been around changing CGT rates, even though CGT is mostly paid elsewhere).
- Care also needs to be taken to introduce any increase in CGT rates very quickly, ideally overnight. Otherwise, people will accelerate gains to beat the rate increase. If an incoming Labour Government plans to increase the rate then it may be wise to pre-announce it ahead of a Budget, and very soon after the election, with the new rate applying retrospectively from the date of the announcement.
None of this is very controversial in tax policy circles. Rishi Sunak asked the Office of Tax Simplification to look into problems with CGT, and equalising rates and reducing the allowance were their key recommendations. Sadly, Rishi shelved it.
There is a debate to be had as to whether, if we’re returning to the higher rates of the 80s and 90s, we should return to having an indexation allowance so that inflationary gains aren’t taxed. The argument for: it’s unfair to tax a gain that isn’t real. The argument against: we tax inflationary elements of income returns (e.g. interest on a loan, bond or bank account is fully taxed). However the CGT position is different: the indexation allowance is solely applied to capital which was locked up/put at risk. So on balance, I would support the reintroduction of an inflation allowance (or, alternatively, follow the Mirrlees Review recommendation of giving an allowance equal to the risk-free return on government bonds).8
Would increasing the rate of CGT adversely affect business investment?
There is no evidence for that. IFS research has found that the current low CGT rates save plenty of tax for investors, but don’t increase investment.
How much would it raise?
In 2020-21, CGT raised a record £14.3bn. I estimate an additional £7bn would have been raised that year if CGT rates had been equalised with income tax and dividend rates9. That’s on the basis of a simple static analysis applied to HMRC data on how much gain is attributable to the various different asset types. It’s quite a lot less than some other estimates out there, very possibly because I am equalising at the dividend tax rate, not the income tax rate. And it would be sensible and just to reintroduce the “indexation allowance” that prevents CGT from taxing illusory gains that are wiped out by inflation.
HMRC estimated that in 2020-21 the £12,300 annual allowance cost £900m.
So overall we are looking at approximately £8bn of revenues. Dynamic effects will reduce this, but I don’t expect by much provided sensible steps are taken to protect the base.
Footnotes
for example Anthony managing “managed accounts” for several large clients can’t have carried interest; Amelia managing a private fund for several large clients can. That’s an undesirable and inefficient distortion. ↩︎
To return to a recent theme: never, ever, look at tax rates in isolation – the question is *what* the rates apply to, and what they *don’t*. ↩︎
I got this muddled in my first draft, and said Barber was Chancellor in 1962, which he wasn’t until 1970 ↩︎
I’m skipping over the taper, entrepreneur’s relief etc ↩︎
The trust rate would also have to be increased. ↩︎
If you don’t buy the logical argument for this, then accept the pragmatic one: if the CGT rate is higher than the dividend income tax rate, people will shift from gains into dividends. That’s precisely what happened in the post-Lawson era, with people using scrip dividends for this purpose. ↩︎
There’s a good discussion of this in Arun Advani’s paper here. ↩︎
Much of the revenue would be income tax, as people cease bothering to convert income to gains ↩︎
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The UK tax system in five infographics, and what we can learn from the fact they are boring
The chart above shows the composition of the UK tax system – the contribution made by each of the different taxes.1
It must have seen dramatic changes over the last forty years:
Not really:2

Or, over a longer period, and as a % of GDP:3

The same data, but normalised so it shows the share of overall taxation:4

Obvious conclusions:
- The conventional wisdom that tax has moved from taxing income (income tax/NI) to taxing consumption (VAT) is correct – but only to a degree. The decline in income tax/NI is small, and the increase in VAT has been almost matched by a decrease in other indirect taxes/duties
- The conventional wisdom that corporation tax has been slashed (the “race to the bottom“) is wrong
- The complaint that business rates are at historically high levels is wrong
- The idea that the EU forced VAT on us, and changed our tax system forever, is also wrong. VAT replaced the various sales taxes, and caused a massive drop in excise duties. The combined total of VAT/sales taxes/duties hasn’t materially changed since the 60s.
- Council tax/poll tax/rates revenues look much the same, despite the very significant changes over this period
How does it compare with the rest of the OECD?
That looks like this:5

Comparisons are easier if we normalise, and order by the total % of tax collected in income tax and social security/national insurance:6

We need to be cautious about these comparisons. There are services which are paid for out of general taxation in some countries, but paid for directly by individuals in others. The obvious large example is healthcare in the US – about 55% of which is paid for by businesses and individuals rather than the Government. A smaller but still significant example is local services: some (e.g. rubbish collection) are paid from council tax in the UK, but by direct fees in some Continental countries.
With that large caveat, what can we conclude from these charts?
- The tax system most similar to the UK is Portugal, which I find surprising – although Portugual collects somewhat more in VAT and other indirect taxes, and the UK collects somewhat more in capital/land taxes
- Amongst the countries similar to the UK – large developed economies with relatively generous welfare states, the UK has the smallest overall tax as a % of GDP, the smallest overall tax % collected from individuals/wages, and the largest from capital/land taxes.
We shouldn’t exaggerate these differences. There are obvious large variations in total tax as a % of GDP between countries, but it’s remarkable how – aside from a couple of outliers7 – the differences in tax composition between countries is relatively small.
Another way to look at this is to plot the % of tax on the wages of the average worker (i.e. income tax, and employee/employer’s national insurance only) against the level of state spending in each OECD country:8

It’s notable that there’s no country in the world which taxes the average worker less than the UK, but has higher government spending.
We should therefore be sceptical of anyone who claims that we can radically change the balance of taxation and [eliminate corporate tax][tax corporates more and people less][tax land more and everything else less]. International experience suggests our options are limited to fiddling at the margins here and there9 or, more courageously, choosing to significantly increase or decrease the size of the state, and therefore decrease or increase most people’s taxes, and the public services they fund.
Footnotes
Sources are here for most of the taxes, here for local government taxes and here for vehicle excise duty (the latter being a forecast, not an outturn) ↩︎
Thanks to the IFS who did all the work here – I just bundled similar taxes together and plotted it ↩︎
Ignoring minor taxes; there are dozens, and they make the chart unreadable. ↩︎
Again ignoring minor taxes. ↩︎
Thanks to the OECD for the wonderful global revenue statistics database. I just categorised similar taxes together – but had to push the taxes into a smaller number of categories than for the UK-only charts above, or cross-country comparisons became impossible. ↩︎
I’m bundling employer and employee SS/NI together, because all the evidence is that, in the long term, employees bear the economic burden of employer labour taxes, i.e. because a business will generally keep its overall labour costs constant as taxes increase, so take-home wages fall (Again, in the long term) ↩︎
Chile! ↩︎
This is now updated using the latest OECD data for 2022. I’ve removed Ireland because of the well-known problems with Irish GDP data, and excluded Chile because it is so great an outlier that it makes the chart hard to read. ↩︎
Don’t knock it! -almost everything I write is about fiddling at the margins ↩︎
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In which country do employees pay the highest tax on their income? Is it the UK?
How does the UK1tax on employment income compare with other countries? It’s a simple question – but not straightforward to answer2.
One way is to look at different tax rates. But the rates alone are misleading. The biggest missing element is: when do the rates apply? The 37% top rate of Federal income tax in the US kicks in at $523,600. The top UK rate – now again 45% – applies from £150k. So saying the UK rate is just a bit higher than the US rate misses the most important question: how much tax do people actually pay? What is the effective tax rate on any given income?
So I wrote some simple code3 to calculate and chart the effective rate4 of tax. on an employee5 – or the “tax wedge” for different multiples of the average wage in each country6. See my previous post introducing this approach for more detail and a complete list of caveats and limitations. The updated code is here.
Here’s the chart comparing UK tax (before and after the mini-budget) with the rest of the OECD, looking at incomes going up to 5x average wage. For context: the average (mean) UK wage is about £37k7, so the top end of this chart goes to a touch under £200k.
Click the chart8 for an interactive version that lets you select/deselect different countries (which prevents it becoming unreadable):

The generous UK personal allowance means that a Brit on an average income pays less income tax/national insurance than most anyone in the developed world. The basic rate and national insurance9 however are high enough to accelerate our rate towards other countries. The introduction of the higher rate is hard to spot on the chart, because it is (more or less) accompanied by a reduction in national insurance (and these figures don’t model child benefit or other features that can create horrible marginal rates in the UK around the £60k point). Things do kick off at the 2.7x point/£100k, as the phase-out of the personal allowance escalates the effective rate.
What if we look at tax on higher incomes? Let’s go up to 20x average wages, so about £500k in the UK. Again, click the chart for an interactive version:

All in all, the UK has a rather average level of tax on high earners, compared with the rest of the OECD. And for employees the rate caps out at just over 50% once we take employer’s national insurance into account (as we should).
Does anyone actually pay these really high rates?
Usually, the only high earners who pay these rates are employees. For others, the rates are often much less. In the UK the rates drop to 47% (partners in partnerships10), 45% (rent), 38.1% (dividends), 28% (capital gains on real estate) or 20% (capital gains on securities). And the evidence is that really higher earners tend to be in these categories (or can plan their way into these categories).
Employment tends to be heavily taxed because it’s so easy to do. Those poor, poor bankers get all the flak, but pay a lot of tax. Their private equity cousins pay about half as much. And the same’s true almost everywhere… call me cynical, but I’m doubtful there are many Austrian millionaires actually paying a 68% effective rate.
So if, as a political or economic matter, we want to increase taxation on high earners, I’d suggest that the focus shouldn’t be on changes that increase the 50% rate (which already looks high) – better to focus on the others.
Can it really be true that the UK taxes average income significantly less than most other countries?
It’s something almost nobody believes – but it’s nevertheless true. If you don’t believe my chart, here’s the OECD comparison for average incomes:

It shouldn’t be a surprise that the countries with more extensive welfare states than the UK have higher rates of tax on the average worker. By contrast, some of them tax higher earners more; some don’t. The thing is, whilst the level of tax on the rich is of huge political significance, it is not very significant to the public finances. The 45p rate which the Tories abolished-then-didn’t raises £2bn. Income tax as a whole raises £228bn. NHS spending is £136bn.
If we want a Scandinavian level of public services, then most people have to pay similar levels of tax to most people in Scandinavia. Sorry about that.
Footnotes
excluding Scotland – that’s very similar but a bit higher… although Scotland’s actual freedom of manoeuvre here is very limited ↩︎
This is an update of previous posts with updated data, better code, and more footnotes ↩︎
based on data from the wonderful OECD tax database, updated for the Budget changes and the return of the 45p top rate ↩︎
The effective rate is total tax paid divided by total gross income. Not to be confused with the marginal rate – the tax rate on the next £ you earn ↩︎
The calculation realistically has to include employer national insurance and social security. Yes, it’s paid by the employer, and isn’t visible on our wage slip, but evidence suggests it is mostly borne by workers (i.e. because the employer has an amount they’re willing/able to pay as wages, and employer NICs come out of that). ↩︎
i.e. because realistically you don’t compare taxes on £100k in the UK with £100k in Costa Rica; you should compare taxes on three times the average wage in the UK with three times the average wage in Costa Rica. The OECD adopts a consistent methodology for calculating average wages using national accounts, but a limitation of this approach is that it results in the mean not the median wage. For most purpose this is much less useful, but for this purpose it remains a useful way to meaningfully compare tax rates across different economies… as ever, I’m open to other suggestions ↩︎
Yes, that is a lot higher than the usual figures we see because, as above, it’s the median not the mean, and it’s the average wage not average income ↩︎
I crashed WordPress trying to embed this. Any better suggestions would be appreciated! ↩︎
Including employer national insurance – for which see the footnote above… we may not recognise it, but it’s nevertheless tax that employees bear economically ↩︎
Yes, I avoided tax for years, but in my defence it’s just the way partnerships have always worked ↩︎
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The UK should cut the top 90% rate of income tax
Well-intentioned bodges to the UK income tax system have created anomalously high marginal tax rates for people earning between £50-60k and £100-125k. The marginal rate typically hits 68% but can reach 90%. This is complicated, unfair and a disincentive to work; it could also plausibly be holding back growth. Any government serious about fixing the tax system should start here.
There is an updated article on marginal rates here.
The marginal rate
If you want to know your take-home pay, then it’s your effective rate of tax that’s important – total tax you pay, divided by gross wage (more on that here).
The marginal rate of tax is different and more subtle – it’s the percentage of tax you’ll pay on the next £ you earn. Irrelevant to where you are now, but highly relevant to your future, because it affects your incentive to work more hours/earn more money.1 Economists say everything happens at the margin.
The marginal rate of tax in the UK for high earners in theory caps out at 47% (45% income tax and 2% national insurance) once you get to £150k. I’m not terribly convinced this disincentivises anyone to work. But people earning much less than £150k can have a much higher rate, principally due to two effects:
- Child benefit is £1,133 per year for the first child and £751 for the rest. It starts to be phased out by a special tax – the “high income child benefit charge” – if your salary hits £50k, and you get no child benefit at all once the gross salary of the highest earner in the household hits 60k.
- The personal allowance – the amount we earn before income tax kicks in – starts to be phased out if your salary hits £100k, and is gone completely by £125k.
These phased withdrawals create very high marginal rates.
UPDATE: marginal rates are further increased by student loan repayments. See more below.
The calculations
I’ve put together a quick spreadsheet. For a family with three kids, the marginal tax rate for a given salary looks like this:

That bump between £50k and £60k is a 68% marginal tax rate, meaning that, for every additional £1,000 you earn gross, you take home £320.
Looking at it another way: imagine you’re working a reasonably modest 1,500 hours a year and earning £50k gross, so about £38k take-home. That’s £33/hour before tax, £25/hour after tax.
How would you like to work another 200 hours a year for the same pay? Sounds good. But after-tax you’ll be earning £10/hour. You may well not think that’s worth your while. And, if you need childcare, the additional childcare could easily cost you more than the additional pay.
The bump between £100k and £125k is the withdrawal of the personal allowance, and results in a 62% rate between £100k and £125k. Not quite as dramatic as the 68%, but still well over the psychologically important 50% mark – and that rate lasts for a significant £25k.
Let’s go higher
Because it’s linked to child benefits, those high marginal rates just get bigger the more children you have. I have friends with six children. Congratulations, Steve, because you can win a marginal tax rate of 91%.

Why stop there? With eight children you get a top marginal rate of 106% – so if you earn £50k gross, your after-tax pay is £38k. If you earn £60k gross, your after-tax pay is £37k. That’s insane. Hopefully, nobody is actually in that position, but a sensible tax system doesn’t create such results, even in theory.
Update: A clever anonymous coder has made an interactive version of this chart, where you can spawn as many children as you like, and see how high the marginal tax rate goes: here.
Let’s go even higher
To keep the two charts above readable, I’ve omitted the marriage allowance. This lets a non-working spouse transfer £1,260 of their unused personal allowance to their partner, if they’re earning less than the £50,270 higher rate threshold. So it’s worth £252. Unlike the other allowances, it’s not withdrawn in a phased way – it disappears if the £50,270 threshold is hit. That gives us this beauty:2

Earn £50,200 gross, your take-home is £37,887. Gross £100 more salary, your take-home pay is £214 less. You have to gross £800 more to actually make more money – take-home pay of £7 more, to be precise.
The small size of the marriage allowance means its effect vanishes pretty quickly. But it does combine with the child benefit claw-back to create a zone of extremely high marginal rates which persists for some time:
- Earn £52,200 gross, your take-home is £38,274 – that £2,000 of extra pre-tax income ends up as only £387 of additional money in your pocket.
- Earn £55,200 gross, your take-home is £39,223 – the £5,000 of extra pre-tax income has given you only £1,336 post-tax.
That is not much incentive for someone earning £50,000 to increase their earnings.
What about student loans?
Student loans are really just a complicated hidden graduate tax. For someone starting university before 2012, you pay 9% of your salary over £20,184, until the loan is repaid. Of course, the effect on individuals – even those on the same income – will vary widely, depending on how much loan they borrowed, how long they’ve been earning, and how their salary ramped up over time.
We can model it with some simplifying assumptions. Let’s say everyone on the chart is 30 years old, graduated nine years ago, and their salary ramped up in a straight line from £20k to where it is now. The marginal rates then look like this:3

I’d be cautious about citing these figures, given how dependent they are on the assumptions. However, it’s reasonably clear that graduates suffer from startling marginal rates. Please have a play with the spreadsheet if you’re interested. 4
What about [another stupid feature of the tax system]?
The tax-free childcare scheme creates an insane marginal rate at £100,000.
The basic scheme is that the Government will stump up for 20% of your childcare costs, up to £2,000 per child. You qualify if you and your partner’s earnings hit £7,904, and it’s completely withdrawn if one of your salaries hits £100,000. The result? An infinitely negative marginal tax rate at £7,904 and another brilliantly infinite5positive marginal tax rate at £100,000.6

That £100k spike is absolutely not a joke – someone earning £99,999.99 with three children will lose an immediate £6k if they earn a penny more. They then don’t recover to their previous post-tax earnings until their gross salary hits £119k.
You can see this more clearly if we plot gross vs net income:

There are other similar effects: the thresholds around student maintenance loans for one. But I’m going to stop here for the sake of my sanity…
Why does this matter?
It’s complicated and unfair for people hitting these thresholds. The way the child benefit withdrawal applies means that it catches lots of people out.7 The high marginal rates act as a disincentive to work. Across the whole economy, I’m absolutely not an economist, but it seems plausible these effects act as a brake on growth.
The human side looks like this, one of many similar messages sent to me today:

If we’re looking for ways to fix the tax system, then this should be right at the top of the target list. Regardless of where we sit on the political spectrum.
The solution
One solution is simply to scrap the personal allowance and child benefit tapers (and the marriage allowance to boot).8 Problem is, that would be fairly expensive, on the face of it, costing somewhere around £5bn to repeal both,9 although the widespread awareness of these issues amongst the people affected, and use of salary sacrifice, additional pension contributions, etc, makes me wonder if the actual (dynamic) cost might be materially less.
Realistically the most likely source of funding is playing around with rate thresholds, for example reducing the point at which the additional rate kicks in. There are certainly other alternatives; but the important thing is that we really, really, shouldn’t have a tax system that can have a 68% marginal rate, let alone a 90% marginal rate.
Oh, and the other lesson: please please, politicians and HM Treasury, don’t introduce any more tapers into the tax system. Thank you.
The caveats
All the calculations are in this spreadsheet. The key assumptions/caveats are:
- Income tax/NI as for tax year 2022/23, from November 2022 (so the lower NI rate)
- One earner in a household, who is over 21 and not an apprentice, not a veteran, and under the state pension age
- Ignores benefits aside from child benefit (although benefits are notorious for creating very high marginal rates; to some extent that is unavoidable)
- Doesn’t include the thresholds around student maintenance loans.
- Doesn’t include tapering of pensions annual allowance (starting at £240k)
- Doesn’t include effects of the pension cap – that can create high marginal rates, but as it’s linked to the total size of your pension pot, the rate is very dependent on an individual’s specific position.
Any corrections, additions or comments would be much appreciated. Some kind people have offered to add in universal credit taper. It’s an incredibly important issue, but I’m reluctant to do this given that I have no understanding of the benefits system myself. I’d be delighted if others adapt the spreadsheet to do this.
Many thanks to James Wiseman on Twitter for his original calculation, and credit to William Hague for his article that sparked this train of thought.
Footnotes
For more on this, and some international context, there’s a fascinating paper by the Tax Foundation here ↩︎
Strictly the marginal rate is infinite – it caps at just over 300% in my spreadsheet because the resolution of the calculations is £100. Also I didn’t have a monitor large enough to show an infinite line. ↩︎
Corrected to fix a bad mistake/bug in the spreadsheet ↩︎
Now I’ve added the student loan calculations, I regret doing this in Excel, because it becomes unwieldy. Really needs implementation in proper code. Any volunteers? ↩︎
it’s not infinite – I forgot that you can’t divide money forever. For a couple with three kids, claiming the full £6k, the marginal rate will tend to £6k/1p = 60,000,000% ↩︎
For the chart, the spreadsheet assumes the higher earner in a family pays a maximum of 20% of their gross wage on childcare; if you don’t like that assumption you can change it ↩︎
Fixing student loans is much harder, and tied into a series of policy questions where I don’t feel I have expertise to comment. Really not sure what to do about tax-free childcare. A taper would be better than a £100k hard stop. ↩︎
Back of a personal allowance napkin: 500,000 taxpayers earn £120k, value of personal allowance is £5k, so approx cost £2.5bn. Back of a child benefit taper envelope: the child benefit taper was expected to bring in £2.5bn of revenue when introduced in 2013. Since then, child benefit has gone up about 10%, and nominal earnings about 30%. Implying costs of around £2.5bn today. The marriage allowance should be small beer by comparison with either figure. Needless to say, these are hugely approximate estimates; I’d be grateful for anything better anyone can suggest! ↩︎
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Time for solicitors who’ve falsely claimed their libel letters are “confidential” to put things right
The SRA will be cracking down on solicitors who send libel threats that they assert are confidential, and can’t be published – when they’re not and they can. The SRA has now made it clear that these solicitors should give serious consideration to writing to past recipients of these threats, and withdrawing incorrect assertions of confidentiality.
When solicitors send journalists and bloggers letters threatening a libel action, or demanding a retraction, it’s common practice for them to claim that their correspondence is “without prejudice” and/or “confidential”, and can’t be published (or even referred to). It’s a testament to the success of this tactic that I’d no idea this was going on, until I received a letter of exactly this kind.
The small problem is that these letters will almost never be “confidential”, mostly will not be “without prejudice”, and even if they are “without prejudice”, that doesn’t prevent publication. This is not one of those cases where lawyers in good faith can disagree, and the law is complicated and uncertain – it is simply nonsense.1 More on the reasons for this here.
This isn’t a small thing. The Government rightly says that aggressive dubious libel claims – strategic lawsuits against public participation (SLAPPs) – are a threat to free speech and a free press. But SLAPPs only work in darkness – give them the light of publicity and the strategy falls apart. The people writing these letters know that – that’s why they make the phony assertions of confidentiality. If we can end the phony assertions, the SLAPPers will know that any libel threat risks a Streisand effect that will just give more publicity to whatever accusation they’re trying to censor.
I wrote to the Solicitors’ Regulatory Authority back in July, asking them to end the practice of solicitors making phoney claims of confidentiality in libel letters, and received this excellent response:
As part of our work, we are currently developing further specific guidance to the profession on the topic of SLAPPs, highlighting the issues arising from our casework. Further to your letter, we plan (amongst other things) specifically to address the practice of labelling correspondence as “private and confidential” and / or “without prejudice”, and to address the conditions under which doing so may be a breach of our requirements. We think that this approach will help solicitors to comply with our existing standards and regulations and to use those labels only when appropriate. We can update you as and when we publish this guidance.
We are also to carry out a thematic review of a targeted sample of firms, looking at the steps taken by firms to address the issues raised in our Conduct in Disputes guidance. The outcomes of this review, as well as our enforcement work and the work currently being done by the government on reform of the law relating to SLAPPs, may in due course inform further updates to our guidance.
That begged the question: what happens where a solicitor has previously sent a letter to a journalist, or a small-time blogger, which wrongly claimed to be confidential? Solicitors are required to behave in accordance with the SRA Principles: to act with honesty, integrity, independence, and to uphold the rule of law. That means not making statements which you know are false; but it also means that you have a duty to correct a false statement (even if you didn’t know it was false at the time you made it2).
I therefore wrote to the SRA last month, asking them to include in their guidance a requirement for solicitors to proactively correct false claims of confidentiality:
The SRA has now replied, saying that they will consider adding that to their guidance; and, importantly, adding that where a firm has made a false assertion of confidentiality, whether or not they’ve subsequently withdrawn that assertion will be taken into account when and if the SRA comes to consider a complaint against that firm:
When the SRA guidance comes out, if it’s as clear as I expect it to be, that should trigger a wave of SRA complaints by everyone who’s received a letter with a phony confidentiality claim – whether they’re a national newspaper or a blogger with a readership of a dozen.
Those solicitors who’ve sent these letters should be giving serious consideration to proactively writing to past recipients of these letters, and withdrawing their false assertions. They should do this because it’s right. They should also be very concerned about the consequences – for their firms, and for them personally – if they don’t.
Photo by Kristina Flour on Unsplash
Footnotes
I am a tax lawyer, and not an expert in confidentiality – although like most commercial lawyers I have a reasonable knowledge of the law – but I have spoken to lawyers who have real expertise in the law of confidence/confidentiality ↩︎
And to be fair, I expect most cases will be in this category. Solicitors love their templates, and many core elements of a letter they send today will be based upon something that was first put together many years, or even decades ago. So I expect most solicitors sending out these letters did so in good faith, not appreciating that they were asserting something that was wrong as a matter of law. However now they are alerted to the point, and they are aware (or should be aware) that these assertions are false ↩︎
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When tax cuts cost you money – the effect of previous stamp duty reductions
This chart shows house prices having a heart attack.
The big spike in June 2021 just happens to coincide with the last month of the £500k stamp duty “holiday”. Buy a £500k property in June 2021: £0 stamp duty. Buy in July 2021: £12,500. So a nice 2.5% saving. Shame about the 5% price hike in June 2021. Overall, buyers lost out.
Then another spike before the end of the £250k nil rate band in October. Buy a £500k property in September 2021: £12,500 stamp. Buy it in October: £15,000. A 0.5% saving – again swallowed by house price increases.
These look like irrational results: buyers would have been better off waiting til the holidays ended. But humans are irrational creatures1.
And these prices stick – March 2021 to December 2021, the net effect of the heart attack is a 6% increase (when looking at the chart, remember it’s a chart of house price inflation, not absolute house prices).
Previous stamp duty holidays had less dramatic effects: there’s good evidence that the 2008/9 stamp duty holiday did lead to lower net prices, but 40% of the benefit still went to sellers, not buyers. There’s also been some research on the 2021 holiday, but it was completed too soon to catch the September heart attack.
So all of this suggests stamp duty holidays are a bad policy, an inefficient way of helping buyers, and that they perhaps even trigger price rises greater than the tax saving.
A permanent stamp duty change shouldn’t, at least in theory, have as dramatic an effect – a chunk of the benefit would still be swallowed up in higher prices, but we wouldn’t see the heart attack. In the real world, however, I expect we will – partly because some people (rationally) won’t believe the stamp duty reduction is permanent, and partly because some people will (irrationally) excitedly jump on the stamp duty reduction.
The bigger point is that, from a distributional point of view, stamp duty cuts are a way to hand money to those who already have it.
And the bigger conclusion: stamp duty is a terrible tax. As the Mirrlees Review2 put it:
Stamp duty land tax, as a transactions tax, is highly inefficient, discouraging mobility and meaning
that properties are not held by the people who value them most…I’d scrap it, and replace the £12bn of revenue with increased council tax on high-value properties (not hard, when council tax raises £42bn). Fairer, more efficient, more redistributive, not a bloody transaction tax, and might even help dampen down the property market. More on this to follow.
Footnotes
Or are they? A smart person suggested to me that a rational buyer might prefer to pay £525k with no stamp duty than £500k plus £12.5k stamp duty, because their mortgage lets them spread the £525k over 25 years; the stamp duty has to be funded in cash. That’s a very cool explanation, but doesn’t make this good policy! ↩︎
Which if you haven’t read, you should ↩︎








