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Should a hairdresser be the next Chancellor?

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If the next Chancellor of the Exchequer is really committed to levelling up, he or she must think seriously about a short back and sides for the tax system.

15th Feb 2024
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On their own, statistics rarely shed much light on the human condition. However, sometimes comparing and contrasting datasets can be very instructive.

Two pieces of research that were published last week bring home the anomalies in our tax system.

According to self-proclaimed “tax rebate experts” RIFT, using “average salary data from the Office for National Statistics and income tax guidelines from the UK government”, the profession hit hardest by the UK’s favourite stealth tax, the freezing of personal allowances, is people who cut hair.

“In 2022, the average gross salary for a hairdresser or barber was £13,548, earnings on which they paid an estimated £311 for income tax and national insurance (NI). 

In 2023, the average salary for a hairdresser increased to £14,725, which resulted in tax and NI payments increasing to £645. This means hairdressers saw their income tax bill rise by 107.2% year on year.”

Pleasingly, while beauticians, taxi drivers and florists come next in the list, we financial professionals are lagging way behind, expecting to see tax liabilities 0.4% lower in 2023 than the previous year. However, those who are getting sick of dealing with wayward clients and fancy an exciting new challenge could consider becoming fitness instructors, as that profession dropped out of tax completely in 2023.

This is all rather sad, especially when taken in the context of the other fresh revelation.

It is highly commendable that both Rishi Sunak and Jeremy Hunt publish information about their tax liabilities. Many of their predecessors chose to keep the information under wraps, for obvious reasons. Long may such openness continue, whoever might take on these roles going forwards.

A snip

To many accountants, the most shocking element of Rishi Sunak’s income is likely to be his prime ministerial salary. Without wishing to sneer, when partners in Big Four firms frequently bring in something close to an average of £1m, it comes as a shock to be reminded that the man responsible for running our country is paid a measly £139,477. In the circumstances, you wonder whether he might be better off joining PwC or EY with just as much fun on offer but far less hassle and adverse publicity.

If it were down to me, I would pay the prime minister and Chancellor at relatively modest rates but then offer them generous incentives if they could achieve genuine economic growth, ensuring that each would receive a seven-figure sum if they could hit the growth jackpot.

Having said all of that, the real story here could well be on the periphery. Sunak received over £290,000 in dividends and interest, which is pretty cool and would put a smile on the face of any hairdresser and many accountants.

However, that is dwarfed by capital gains of £1.8m.

His Chancellor of the Exchequer, Hunt also has a relatively modest salary, but this was supplemented by over £60,000 of unearned income and capital gains of £208,000.

As every AccountingWEB subscriber will be well aware, decisions on tax policy are taken by government ministers and most particularly a combination of the prime minister and Chancellor of the Exchequer.

One wonders how easy it is to be objective about the taxation of capital gains in a situation where you (and almost certainly many of your closest friends and colleagues) stand to benefit very significantly by maintaining the status quo?

Gaining volume

It was a Conservative Chancellor of the Exchequer, Nigel Lawson who immortally opined: “In principle, there is little economic difference between [earned] income and capital gains... And in so far as there is a difference, it is by no means clear why one should be taxed more heavily than the other.”

Committing to this view, in 1988 he equalised the rates of income tax and capital gains tax in a measure that promoted what he regarded as fairness, as well as bringing in a pretty penny to the Treasury.

For the moment, though this could easily be added into the mix, let’s ignore any debates about national insurance contributions (NIC). Nowadays, these are nothing more than a supplementary income tax and there is a strong argument that they should be charged at the full 10% rate without limit rather than knocking 8% off on higher income levels.

By failing to follow the Lawson precedent last year, assuming that the gains were not made on residential property, our prime minister benefited to the tune of £450,000, while his Chancellor was £52,000 better off.

A lifetime’s preening

The average hairdresser would only expect to take home the prime minister’s saving after a lifetime of snipping and preening and the Chancellor’s during the span of the next Parliament.

Some readers may well hold the view recently propounded by Hunt, which is that by committing to £20m of tax breaks in the Budget next month, he is bound to boost the economy. However, since this theory has been borrowed straight from the roundly derided Truss/Kwarteng playbook, the rest of us may justifiably be a little sceptical.

Whether Sir Keir Starmer and Rachel Reeves will do any better remains to be seen. If the next administration hasn’t the gumption to take measures that would be popular with the vast majority of the population, perhaps we could appoint a hairdresser as Chancellor of the Exchequer and let the fun begin.

Replies (17)

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By taxdigital
15th Feb 2024 18:21

Should a hairdresser be the next Chancellor?

Why not? With Jim Harra & Co together they will make an exceptionally good team Making Tax Difficult (MTD) for everyone.

Thanks (1)
paddle steamer
By DJKL
15th Feb 2024 20:27

I find the earnings quoted for hairdressers a tad on the low side, they must have very good accountants.

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Replying to DJKL:
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By spilly
15th Feb 2024 22:35

A high number only work part-time so that brings down the average rate.

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7om
By Tom 7000
16th Feb 2024 10:47

As I understand it since the introduction of Credit cards, hair dressing salaries have doubled? Any truth in the rumour?

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7om
By Tom 7000
16th Feb 2024 10:50

CGT should be double IT
Lets be honest we live on IT, CGT is money you dont need.
Issue is the only people paying CGT are in the house of commons and Lords, so thats the elephant in the room

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Replying to Tom 7000:
paddle steamer
By DJKL
16th Feb 2024 11:30

That is not true- I invest in shares, yes some return me dividends, but some do not (e.g.Berkshire), reinvesting profits for future gains and dividend choices (plus share buy backs) are just decision making by the boards of these companies re how they wish to reward shareholders, mere components of total return, the difference is the gains tend to be intermittent, often larger, the divs more regular, but they are both parts of the total return.

Same applies with say residential property, net of costs I might only get a return of say 3-4% net rental yield, if that was it nobody would invest given the effort, I can get that on shares with no effort, the extra return is the additional hoped for capital gains.

(For my share investments I look for /target, and mainly achieve ,7-8% total return per annum on average, for property I would want more than this as less passive and more work)

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Replying to DJKL:
7om
By Tom 7000
16th Feb 2024 11:35

Indeed, but do you really need that money, to pay the gas bill and buy food. Its just your emergency fund that needs protecting and 12k a year CGT allowance as it was now 6 then 3, is surely enough to have the rainy day money. Everything else is an excess you dont really need to live

Just being theoretical here

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Replying to Tom 7000:
paddle steamer
By DJKL
16th Feb 2024 16:08

Fair few retired people drew their living costs from both dividends and gains, if posts on Lemon Fool are to be believed, they often used a melded mix.

I tend to shelter my investments in pensions (albeit I will get taxed when I do draw) and ISAs, however right now I withdraw nothing as still working three days a week.

I struggle to logically differentiate taking funds from investments by either route, both are returns on making an investment, when we both retire (only my other half currently drawing a pension) I expect drawing both dividends and capital will pay to change cars, take holidays, pass funds to kids and large property repairs, but that does not make them any less part of our income in retirement than state pensions (two more years) occupational pension (now being taken) and my SIPPS (still to be touched), they are merely the part that for efficiency I try to leave untouched but all are part of what will be our retirement income.

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Replying to DJKL:
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By Rob Swan
16th Feb 2024 17:21

Arguments either way are, methinks, chosen to produce the required result, rather than the result of good logic and common sense.

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By simes
16th Feb 2024 11:53

Nigel Lawson misunderstood this and I am surprised that some commenters here do too. Capital gains are entirely different from income. Investing for capital gain means putting your capital at risk. You can easily have a negative return. Earned income, however, is never negative. The worst that can happen is that your earnings cease (e.g you lose your job) and you have to look for a new source of income, but you never lose income that you have already earned. However, the economy needs people willing to take the risk of investing in companies; we'd be in deep trouble if the tax system made it unattractive to do that. Therefore, capital gains and income are quite different in principle, and to encourage investment in businesses, capital gains must be taxed more lightly than income.

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Replying to simes:
paddle steamer
By DJKL
16th Feb 2024 15:58

But dividends and rentals are income, why different rate where both arise from the same investment?

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Replying to DJKL:
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By AndyC555
19th Feb 2024 11:21

Because the income tax rate on dividends reflects the fact that dividends are paid out of what's left of company profits after they have suffered corporation tax.

Big Co Company profits £10,000,000. Corporation tax £2,500,000

£7,500,000 distributed as dividends to basic rate taxpayers, income tax 8.75% = £656,250.

Tax paid on £10,000,000 profits = £3,156,250 = 31.56%

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Replying to AndyC555:
paddle steamer
By DJKL
20th Feb 2024 09:42

My different rate comment was between CGT and the income tax rate not between dividends and rental profit rates, I think my phrasing might have been clearer.

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By Rob Swan
16th Feb 2024 13:26

One might be excused for assuming that ANY experienced business owner would make a reasonable Chancellor. NOT so, (unless you think Hunt is doing a good job)! And perhaps a bit risky to mention on this platform - oh, what the heck! - that an accountant didn't do much good in Number 10 either.
What's needed is integrity and gumption - hairdresser or not. Qualities which are generally not favoured by the current political process, I fear.

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By Arcadia
16th Feb 2024 13:39

The capital gains that Rishi Sunak made were not from selling investments in companies or property they were from abusive products designed to convert income into gains for tax purposes. I say shame on him.

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Replying to Arcadia:
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By simes
16th Feb 2024 15:29

How do you know that?

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Replying to Arcadia:
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By Open all hours
16th Feb 2024 15:45

Thought they were in a blind trust for PM? Whatever the case you seem to exceptionally well informed.

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