Tax: Church Action for Tax Justice Reports

Lord Bishop of Portsmouth Excerpts

Thursday 21st January 2021 Grand Committee

[The Lord Bishop of Portsmouth [V]]

My Lords, I am delighted that my good friend and close colleague the right reverend Prelate the Bishop of St Albans secured this debate. I congratulate him on bringing these reports from Church Action for Tax Justice to wider attention. I urge the Government to assess and act on them.

I particularly endorse the right reverend Prelate’s drawing attention to the often pernicious interaction of income tax and national insurance so-called contributions. The reality is that such “contributions” are no such thing. These are two direct tax systems working alongside each other, but crucially not together, and often unfairly. This is exacerbated when the impact of other taxes, such as council tax, is factored in.

I cannot claim now, as my time as an economist is long past, anything other than an amateur understanding of the economic impact of direct taxation. However, it is abundantly clear that, whatever the very modest merits claimed by the noble Lord, Lord Field, the interaction of these taxes—some progressive and others regressive, with varying conditions—causes a confusing and inequitable impact on the take-home earnings of those on low and modest incomes. This is an impact on those who can least afford it and are least able to absorb it.

The report Fair Tax Now illustrates this by powerfully comparing how the average tax on income borne by an NHS nurse and a person earning £10 million a year favours the multi-millionaire. However, there is also very significant unfairness in the tax treatment of those on low and very modest incomes, particularly in the marginal tax rates they face. No payments of national insurance and income taxes are paid on earnings up to £9,500 a year, so then a 12% national insurance rate kicks in. Income tax at the basic rate of 20% is added above £12,500 a year, giving a marginal tax rate of 32%. If you are fortunate enough to earn more than £50,000 then income tax rises to 40%, but the national insurance component of direct tax on income falls to 2%. The marginal tax rate on income of 50% and above is not an extra 20% as popularly claimed, but only an extra 10%. There are many other injustices and there is not nearly enough clarity. We need less inequality and injustice. I urge the Government to address this urgently.