Why the rich were better off under 1970s Labour

The 1970s are often associated with strikes, punk, bell-bottom flares and level shoes. But the decennary is besides remembered for eye-watering taxation rates nether Harold Wilson’s Labour government.

Back then, the apical complaint of income taxation was 83pc connected earned income implicit £20,000 (the equivalent of £153,000 today) and 98pc for those with “unearned” income acknowledgment to the investment income surcharge.

And yet, it appears the affluent were technically amended disconnected nether the taxation strategy of the 1970s, acknowledgment to a plethora of tricks and loopholes disposable astatine a clip erstwhile the taxman was overmuch much relaxed.

Today, the apical 1pc of earners wage astir a 3rd – 28pc – of the nation’s income taxation bill. But successful 1978 that stock was conscionable 11pc.

It whitethorn look counter-intuitive but determination are reasons wherefore the affluent paid little taxation successful the 1970s than they bash successful 2025.

One is simply that the affluent gain much now. The stock of household income going to the apical 1pc doubled from 4pc to 8pc betwixt 1970 and 2013, according to the Institute for Fiscal Studies.

But that is not the lone reason. Research by Tax Policy Associates, a deliberation tank, has recovered that the precocious rates of the 1970s were easier to avoid. For example, precocious earners could take to instrumentality their wage successful the signifier of perks similar cars oregon meals retired due to the fact that determination was nary income taxation connected benefits successful kind.

Interest connected mortgages and concern loans was afloat tax-deductible until 1974. And earlier the “temporary non-resident” rules were introduced successful 1998, idiosyncratic who had made a ample capital gain could permission the UK and instrumentality the adjacent twelvemonth to debar paying the bill.

On apical of this, precocious rates fuelled a roar successful taxation avoidance schemes astatine a clip erstwhile determination were less anti-avoidance rules.

Dan Neidle, of Tax Policy Associates, said the taxation policies of the 1970s “failed to taxation the affluent effectively”, portion Chris Etherington, of RSM, called the UK taxation strategy “unrecognisable” from what it looked similar successful the 1970s.

Today the taxation codification is implicit 23,000 pages long, but successful 1976 it was conscionable 1,626.

Mr Etherington told Telegraph Money: “The simplicity successful the strategy provided much accidental for individuals to minimise their taxation liabilities and we present person an array of rules to antagonistic taxation avoidance that didn’t beryllium astatine that time.”

There has besides been a large displacement successful attitudes towards taxation implicit the past 50 years.

He added: “The bulk of individuals simply privation to guarantee they are paying the close magnitude of taxation astatine the close clip and volition steer good wide of assertive taxation schemes, which HMRC present has the tools to counter.”

In caller decades a fig of taxation rises person specifically deed higher earners. One illustration is the tapering of the idiosyncratic allowance nether Gordon Brown.