The PM’s tax returns, which were cynically published at 4.30pm on the day that his predecessor Boris Johnson was being grilled over his honesty, are not tax returns. They are a summary of his tax affairs prepared by his accountants, not the same thing at all.
They do contain some interesting information nonetheless. For a start, Sunak has put his considerable wealth into what is called a blind trust. This is normal practice for senior politicians and means the money is his and he reaps the rewards of its investment, but he has no say over how it is invested. This is done to remove any claims he is introducing policies to benefit himself.
It is, however, a very clever blind trust because it has invested the PM’s money to make capital gains, not generate an income. That is very handy for the PM as income is taxed at 45% for high earners in the UK and capital gains is taxed at just 20%.
This alone explains why he pays so little in tax – a rate of just 22% on average or some £432,000 last year – when he is worth many millions. His blind trust is letting the money accumulate and paying tax when it sells assets that have risen in value rather than taking much money out as income.
This investment policy may be sensible for the PM, but it highlights one of the glaring problems and inequalities of the British tax system. Tthose who have large amounts of money pay less tax on it than those with very little money. PAYE is remorseless and pretty unavoidable, the little people pay what they must; the rich pay what they can get away with.
But there is a far wider issue at stake, there has been a long history of giving huge tax breaks to those with money and not just the very low 20% tax on capital gains. There are ISAs, tax free interest allowances on savings, free untaxed housing wealth, Premium Bonds and National Savings, vastly increased tax-free pension breaks, very generous inheritance tax allowances and so on. And that is all before you even have to worry about moving to Gibraltar or Monaco or hiding your money in Panama or the Bahamas.
This distorts the economy terribly. Why earn if you can live tax-free off savings, why invest if you can sit on totally secure government-backed securities? Let the young and the poor and the wage slaves pay taxes on income, you have untaxed or low-taxed savings to live on and can pay just 20% tax on that.
After all, the PM does.