Tax take to fall 8.4pc on Brexit loss of 100,000 high earners

BrexitA Brexit-fuelled loss of 100,000 high earners would lead to an 8.4 per cent fall in income tax revenue, figures from LCP show.

The consultancy says the UK Government faces a £13.9bn hole in its finances in the event that failure to secure access to the EU single market leads to 100,000 high earners – those earning over £150,000 a year – moving to financial institutions in other European centres.

LCP says for the tax year 2013/14, 340,000 income tax payers had earnings over £150,000 in the year, equating to just over 1.1 per cent of the income tax paying population.

Those 340,000 individuals earned £126bn – 13.25 per cent – of the total of £951bn earnings potentially eligible for income tax, but paid 28.6 per cent of the total £165bn income tax bill.

If other taxes remained unchanged, income tax rates would need to increase by 9.2 per cent to accommodate this – giving a basic rate of around 22 per cent, a higher rate of 44 per cent and top rate to 49 per cent.

LCP partner Andy Cheseldine says: “In the past, one of the arguments against increasing the top rate of tax has been that many high earners are internationally mobile.  So if we taxed them too highly they could leave the UK for sunnier, and lower tax, shores.  However, in practice, tax levels are broadly similar across the world, at least in those countries with developed financial services sectors, and along with other factors this meant international transfers were relatively rare.

“Now, however, there could be much less discretion involved and it may be jobs rather than people moving out of the UK.  If UK financial institutions lose access to the EU single market many are likely to move core operations to other EU centres.”

In practice, we couldn’t spread the loss in income tax across different taxes, because the same group of employees pays a disproportionately high share of VAT – as they have more disposable income, Capital Gains Tax – because they have more disposable income to invest, and Stamp Duty – because they buy more expensive houses.   In practice all of those taxes might also need to increase by broadly 10 per cent.