The debate over the 50p top tax rate has dominated this year’s budget. But have Britain’s high earners really never had it so bad? While it’s difficult to make absolutely fair comparisons, history shows us that the very richest have faced tax rates of up to 98 per cent at several points in postwar history.
And twice in the last century, the effective top rate actually passed 100 per cent.
By our reckoning, taxpayers in the top band have paid more than 50 per cent in 70 out of the last 100 years.
1799 – Income Tax is introduced for the first time by William Pitt the Younger as an emergency measure to stave off the threat of invasion by Napoleon’s all-conquering armies. The top rate was 10 per cent on income from all sources above £60 – about £4,600 in today’s money.
[Pitt and Napoleon are shown carving up the world in James Gillray’s cartoon.]
The comments of an unnamed naval officer were recorded by a contemporary writer: “It is a vile, Jacobian, jumped up Jack-in-Office piece of impertinence. Is a true Briton to have no privacy? Are the fruits of his labour and toil to be picked over, farthing by farthing, by the pimply minions of bureaucracy?”
1802 – A peace treaty with Napoleon led Pitt’s successor Henry Addington to abolish the tax. Renewed hostilities meant that it made a comeback the following year, with the rate slashed to 5 per cent but the number of taxpayers doubled. By 1806 it was back up to 10 per cent.
1816 – Victory at Waterloo led to a popular outcry against the continuation of income tax. The chancellor, Nicholas Vansittart, reluctantly abolished it to “a thundering peal of applause”. Jubilant citizens are said to have thrown their tax records on to a bonfire in the Old Palace Yard at Westminster. Another story is that duplicates had been made and sent to the King’s Remembrancer for safe-keeping.
1842 – Sir Robert Peel reintroduced income tax, having promised he wouldn’t before the general election. The measure was temporary – and still is, technically. The tax lapses at the end of each financial year and Parliament has to impose it again with an annual Finance Act.
1913 – The top rate stayed low until Britain started to prepare for war with Germany. In 1913 it was 8.3 per cent on income over £5,000 a year (£384,000 today). By 1918 those earning more than £10,000 a year were paying 52.5 per cent.
1930 – The rich were hoping for tax cuts after World War One but were destined to remain, in the words of Winston Churchill, “stranded on the peaks of taxation to which they have been carried by the flood”. Top rate: 60 per cent on income over £50,000 (£2.47m). By 1938 top earners were paying 72.5 per cent as another war loomed.
1941-45 – The effective top rate reaches 98 per cent for those earning more than £20,000 (£673,000 in current value). It’s a historic high, but seen as a necessary evil in the struggle against Nazi Germany. Uniquely, the extra tax paid by people who saw their personal allowances lowered during the war was recorded. Post-war credit certificates were issued and many taxpayers were repaid by 1973.
1947-48 – A temporary extra tax on investment income meant the effective top rate for very high earners temporarily climbed to 147.5 per cent.
1966 – Surtax is attacked by George Harrison in the Beatles song Taxman. Harold Wilson’s Labour government had introduced a top rate of 95 per cent for the highest earners – about 750,000 people. Rock stars like the Rolling Stones became high-profile tax exiles in the following years as rates stayed high.
1967-68 – Another special charge on investment income meant a total top rate of 136.25 per cent for the very rich.
1974 – the top rate had fallen to 75 per cent under Edward Heath’s Conservatives, but Wilson oversaw another hike to 98 per cent for the highest earners.
1979 – Margaret Thatcher’s Conservative government reduce the top rate to 60 per cent.
1988 – The Tories slash the top rate again to a historic low of 40 per cent.
1990 – Married women are taxed independently on their own income and given their own personal allowance for the first time.
1992 – The Queen chooses to pay tax on her income. It is the first time a British monarch has paid the tax since Queen Victoria.
2010 – After an unprecedented 22 years without change, Labour chancellor Alistair Darling introduces a new top rate of tax: 50 per cent on income above £150,000.
By Patrick Worrall