Just how grateful are you to the super-rich? Not terribly, at a guess. But perhaps you should be. After all, the top 0.1 per cent, a mere 50,000 individuals, pay at least 10 per cent of all income tax, so each pays at least 100 times more than the average. The top 1 per cent pay a third of all income tax. While their shares of other, less progressive, taxes will be a lot less, there can be no doubt that if it weren’t for them the rest of us would be paying a lot more tax, or we’d have much less spent on our public services.
Of course, there’s a reason they pay so much tax. They have rather a lot of money. The top 0.1 per cent, the lucky 50,000, all have incomes in excess of half a million quid a year. They are the ones we really have in mind when we talk about the top 1 per cent as a shorthand for the super-rich. To get into the top 1 per cent you need a mere £130,000-a-year or so before tax. Nice money for sure. But look at the difference. You go 99 per cent of the way up the income distribution and you get to £130,000. Just another 0.9 per cent takes you to over £500,000. To be in the top 5,000, the 0.01 per cent, requires millions.
For most of the past 40 years we’ve had cause to become both more envious and more grateful.
The top 1 per cent share of income has grown from about 6 per cent to 15 per cent over that period. The top 0.1 per cent share has more than trebled to 6 per cent. On the upside, the share of income taxes they pay has grown even faster. And looking at the period since the financial crisis we have actually had cause to become less envious and more grateful: their income shares have gone down a bit while their tax shares have gone up.
So, who are these guys? Well, 80 per cent of the top 1 per cent, and nearly 90 per cent of the top 0.1 per cent, are indeed guys; gender inequality is alive and kicking in the economic stratosphere. They mostly live in London and the southeast and are mainly middle-aged.
Three other characteristics of the super-rich were brought into sharp relief by two well-timed reports released last week by, among others, colleagues of mine at the Institute for Fiscal Studies. One by Arun Advani and co-authors looks at the number of immigrants and “non-doms” at the top of the distribution. One by Helen Miller and others illustrates the importance of the self-employed, business owners, and partners in professional firms among the highest earners. Both tell us that a lot of the highest earners work in banking and financial services.
We spend a lot of time talking about the very high pay of chief executives. We spend too little time worrying about what is going on in finance. The best estimate of the total remuneration paid to heads of the UK’s 100 largest public companies in 2018-19 was just over £450 million. Yes, that’s an absurd amount each, but total wage income received by the top 0.1 per cent that year was £37 billion. The big money is elsewhere.
A staggering 44 per cent of wage earners in the top 0.1 per cent work in financial services, compared with 5 per cent in the top half of the income distribution as a whole. The very top of the income distribution is increasingly populated not by the most senior executives from a wide range of firms but by employees of high-paying companies concentrated in finance. In many occupations a six-figure salary is an indication of having made it. In finance and banking a salary of £100,000 is for those in the foothills of their careers.
That helps explain why a quarter of the top 1 per cent were born abroad, a figure boosted by the prevalence of doctors in that group, and of migrants among medical workers. Not many doctors in the top 0.1 per cent though. The fact that nearly a third of that super-rich group were born abroad is because of the importance of finance to the UK economy and the global nature of that industry. In a week in which we have heard a lot about non-dom status, Advani’s work shows that more than one in five top-earning bankers is a non-dom.
It’s not so much immigrants coming here and living off benefits as immigrants coming here and paying for them. And they’re not taking our jobs either. These are global industries and global jobs that happen to be located here. There is, though, a serious question about whether that is good for the UK. Being a global hub for finance and professional services brings in a lot of money, billions of which flow into the national coffers. But it also makes for one of the most unequal countries in the developed world. Is the one worth the other?
There can surely be little dispute over the inequity created by another characteristic of the super-rich. As Miller and colleagues show, for most of the population, income from self-employment and business ownership is relatively small beer. Yet it makes up almost a third of the income of the top 0.1 per cent. That kind of income is much less heavily taxed than ordinary earnings, especially when it can be rolled up into capital gains. On this we do have a choice and it’s hard to see how it isn’t win-win.
It is time to sort out the taxation of this type of income and ensure that rentiers, partners in professional firms and those set up as business owners are at least taxed on the same basis as the rest of us.
This article was first published in The Times and is reproduced here with kind permission.