I have a real distaste for politics. It’s a profession where self-interest is incentivised above all else and as such, reality matters far less than what any politician can make people perceive to be reality. And boy do they push that perception envelope.
For someone (like me) who views human nature through the economics lens of incentives and trade-offs, politics in particular is a frustrating arena of predictability, repetition and short termism. As another economist, Thomas Sowell, once said:
“No one will really understand politics until they understand that politicians are not trying to solve our problems. They are trying to solve their own problems—of which getting elected and re-elected are number one and number two. Whatever is number three is far behind.”
It is in this sentiment I find my current ire at the UK political class and their growing rhetoric around “paying a fair share” which they generally aim at a non-descript group of people (“the rich”).
As I wrote in “Escape The Wealth Illusion”, my issue with this tactic is its intentional dishonesty and its constant deflection of requests for detail. Who are “the rich”? What is a “fair share”? Who is the arbiter of these definitions? Of course, no politician, regardless of rosette colour, ever answers these questions because answers provide detail and detail provides clarity. Politicians don’t want clarity, they want division. They certainly don’t want an informed electorate.
The Informed Electorate Paradox
My wife and daughter have been watching the UK TV show “Traitors” and recently “convinced” me to watch the celebrity version. It was quite entertaining, but I realised early on that the basis for the game was familiar to me and thus found watching useful in the context of what I thought might be proven as an outcome.
The roots of the game lie in Russian psychologist Dimitry Davidoff’s “mafia” game, invented in 1986 at Moscow State University. It was later rebranded as “Werewolf” in western civilisations but the premise remained – an informed minority killing an uninformed majority while the uninformed majority tried to expel the informed minority.
It has been claimed that Davidoff’s intent was to prove directly that informed minorities always have the upper hand over uninformed minorities, but there are no direct references to this in his work and in his own words he never mentioned this as a core theme. So I think this most likely a myth. However, intentional or not, it does create this dynamic and for anyone who has played enough “Among Us” (an online version of the concept popular with kids) it’s certainly evident that those in the know prevail more often, anecdotally at least, than those who aren’t as they villainise each other.
Something of a tangent in this explanation, but from a political perspective I think the idea central to the standard political approach of not being clear, direct and honest with an electorate. Politicians are the “Traitors” and with enough misdirection, falsehood and subtle accusation we’ll each, the uninformed majority, create villains of and expel each other from our collective mass, moving them closer to their end game – retention of power for themselves.
“Fair” and the Uninformed Majority
The phrase “everyone should pay their fair share” is mostly rhetorical — it’s designed to sound morally unassailable while implying that the rich (another undefined term) are somehow cheating. In reality though, the UK already has one of the most progressive tax systems in the OECD: the top 1% of income-tax payers pay ~30% of all income tax, the top 10% pay ~60%, and the bottom 50% pay almost nothing net (once benefits and tax credits are factored in).
A recent article in the Financial Times (chart below) highlighted that low paid workers in the UK are already taxed much less than in most countries, while the climb in tax rate from low through middle to high earners was the steepest of any country, including the Scandinavians.
We live in a country where the push is for Scandinavian style public services but without the Scandinavian style taxes that pay for their outcomes. The reality is that if we want to go down that road, we can’t do it purely of the back of those who are better off. Taxes would have to rise for everyone, as you can see in the left chart above. EVERYONE would have to move up.
But in the UK we seem to expect Scandinavian style services on a US style tax regime for lower earners.
A “Fairness Thought Experiment”
So, what then, is “fair” in the eyes of a politician stoking sentiment towards the term?
Let’s take them at their word and run the thought experiment seriously: what does “fair” actually mean if we strip away their snappy slogans and simplistic soundbites? There are four main philosophical definitions of tax fairness deserving of serious attention. I’ll show what each one actually implies in cash terms for the UK (using approximate 2024-25 numbers).
**1. Equal absolute amount per adult (“head tax” or flat lump-sum tax)**
– Most literal meaning of “everyone pays the same”.
– Total UK tax revenue needed ~ £1,100 bn (central + local government).
– ~ 55 m adults → every adult pays ~ £20,000 per year regardless of income.
– A minimum-wage worker earning £24.7kk would pay 81% of their income in tax;
– A high earner on £150k p.a. would pay 13.5%
Almost nobody on the left actually wants this when the numbers are spelled out. But at the same time, none of them are ever willing to answer why everyone paying the same, their actual pro rata split of government spending on their behalf, isn’t “fair” in their eyes.
For what it’s worth, this idea is ludicrous for many, many reasons. Wealth inequality is already a massive issue in the UK and this sort of taxation system would make that worse, remove all possibility of upward mobility from working class families and place millions of children into abject poverty.
So, make no mistake, I don’t propose this as a solution for even a single nanosecond – but I’m not the one telling an electorate that tax should be “fair”. You see my point? “Fair” is the word politicians use to invoke a moral reaction. If they say it should be fair, that implies it’s unfair, and if people believe it’s unfair then they look for who is getting the better of them because they “know” it’s not them.
Fear and Greed. The two most powerful emotions in human psychology in my view (though as a marketeer I have a vested interest in these two for obvious reasons). These are the emotions politicians leverage for their own ends.
**2. Equal percentage of income (pure proportional/flat tax)**
– Everyone pays, say, 25% of their gross income and nothing else (no NI, no VAT regression, no zero-rate bands).
– A worker on £15k pays £3,750.
– Someone on £100k pays £25,000.
– Someone on £1m pays £250,000.
This is actually less progressive than the current system at the very top (because capital gains and dividends would also be taxed at 25% instead of 20-28%), but more burdensome in the bottom half.
But is it “fairer” than what we have at the moment in light of the FT article. Is it “fairer” than the direction politicians are trying to push taxation? If “Fair” is the metric, then yes, this would be a fairer system.
** 3. Equal sacrifice / diminishing marginal utility of money (the classic economic approach)**
– A pound matters far more to a poor person than to a rich one, so fairness requires higher rates at the top.
– The current UK system (0% to £12.6k, 20% basic, 40% higher, 45% additional + tapering of personal allowance + 2% NI on top) is already explicitly designed around this principle.
– In practice the effective average tax rate (income tax + employee NI + VAT + council tax etc.) rises from ~10-15% on the lowest quintile to ~45-50% on the top 1%.
Most economists think we are already close to (or arguably past) the revenue-maximising point of the Laffer curve under this definition. I am in this category.
I’ve been pushed here over the last few years. I am someone who has always been content to pay a little more as my income increases so that we can retain the services needed by the many. I do believe healthcare, policing, education, social care etc. should be a shared responsibility and I never minded over contributing to that.
But the rhetoric over the past few years means that people like me feel targeted by politicians who have found traction in society so even I have started tax planning to ensure my overall liability doesn’t go beyond a level I’m comfortable with. I’m using my pension more and more and when I get to the point I have no headroom left there with the crazy tax cliffs in place at higher income ranges, my next option is to work less hours. To intentionally be less productive in a country where productivity is in the gutter.
Most people who get ahead based on meritocracy are fairly pragmatic when it comes to paying their share in tax. But there comes a point where the rhetoric and demand becomes such that even those people, like me, are pushed beyond breaking point. We are there.
** 4. Same burden relative to ability to pay, measured as a percentage of discretionary income or wealth **
– Some left-wing versions define “ability to pay” after a decent minimum living standard is protected.
– Example: the Tax Justice Network sometimes argues for a “maximum economic rent” idea or a progressive wealth tax so that no one is left with more than, say, 10× median wealth/income after tax.
– In practice this collapses into very high marginal rates (70-90%) above £500k–£1m or an annual wealth tax of several percent, which pushes the “fair share” number for a £10m net-worth individual into hundreds of thousands or millions per year.
It has never worked in any country that has tried it and the figures banded about by politicians to justify it are nowhere near what would be achieved as those with these levels of wealth began to plan for it.
Think of it like this, in simple terms: In any given crowd of 100 people let’s say 20% (20) are wearing blue jumpers. A politician declares “from tomorrow we will levy a £5 tax on blue jumpers, there are 20 of you wearing them so from tomorrow we will make £100 with the blue jumper tax”. Then tomorrow comes. How many people do you think are wearing blue jumpers?
This is the essence of economics that is often forgotten, the one which I referenced at the outset around incentives and trade-offs. Economics isn’t about money, money is just a measure, one of many, the true value in economics is the leveraging of incentive to achieve the outcome you want with acceptable trade-offs.
In this scenario obviously the incentive is created not to wear a blue jumper, so on day 2 no-one is wearing one and the tax that claimed it would raise £100 actually raises nothing. Larger scale, different variables, but same deal when it comes to wealth taxation. You can’t project an accurate impact tomorrow of an outcome that has no negative incentive today. People will ALWAYS change behaviour based on rational choice towards the incentive that most benefits them individually at any given time.
So what is actually “fair”?
If you believe fairness means “from each according to his ability, to each according to his need” (the classic socialist principle), then the current UK system is not far off that: the “rich” (in income terms at least) already pay 30-50 times as much as the middle and infinitely more than the bottom third in cash terms, and a vastly higher percentage.
If you believe fairness means “the same rules for everyone with no special treatment”, then a genuine flat tax on all income (including benefits in kind, unrealised capital gains, inheritances, etc.) at roughly 25-30% with no allowances or loopholes would be fairer than today — and would actually raise the tax burden on most people below median income while lowering it modestly on the top 1%.
If you believe fairness means literally the same £ amount from everyone, then ~£20k per adult.
Almost nobody who shouts “fair share” inside the political machine though is willing to commit to any of these concrete versions when the numbers are on the table. What they usually mean is “I want more money from That Group Over There and calling it fairness is politically easier than saying I want their money. It’s easier to make them the villain”.
My own view (for what it’s worth): the least bad operational definition of fair is a broad-based, low-rate system as close to proportional as administratively feasible, with a generous universal credit / negative income tax to protect the poor.
Something like:
– 25% flat tax on all income above ~£15k (including capital gains/dividends at full rate),
– plus a citizens’ dividend / negative tax that tops everyone up to £12-15k.
You end up with an effective rate schedule that is mildly progressive but transparent, hard to game, and where literally everyone has skin in the game. But that’s a policy preference, not the only possible definition of “fair”.
But ultimately I just don’t like “fair” as a metric. “Functional and Progressive” would be my preference. And I’d rather politicians just stopped lying about their intent via the emotive use of the term “fair”. Just tell the electorate the truth. But we’ve already covered that with “Traitors”, as apt a name for a gameshow in this context as one could find.
The honest answer to “what is a fair amount of tax?” is therefore: it depends which of the four philosophical definitions above you think is the correct one — and almost no politician will tell you which one they actually mean, because none of the internally consistent versions match their current political demands, or their own selfish incentives.
What do you think?