An article posted on LinkedIn has been gaining popularity as a simplified explanation of the UK tax system. At first glance, it seems quite interesting and well thought through, so I did some fact checking. This is what it really looks like.
Suppose that once a week, ten men go out for beer. The bill for all ten comes to £288.
If they paid their bill the way we pay our taxes, it would go something like this: -
- The richest man earns £781 per week.
- The second richest two men earn about £3.80 each.
- The next richest three men earn about £2.45 each.
- The next richest two men earn about £1.75 each.
- The poorest two men earn about £1.25 each.
The richest man shouts ‘The fairest way is to split it ten ways — everyone pays £2.80!’
He’s outvoted by the other nine men. They decide that the fairest way is to divide the bill proportionately based on income. The combined earnings at the table are about £800. Based on this, they came up with the following:
- £781/£800 = 98%, so the richest man paid £281.
- £3.8/£800 = 0.4%, so the next richest two men should paid £1.36 each.
- £2.45/£800 = 0.3% so the next three richest men paid 88p each
- £1.75/£800 = 0.2%, so the next richest two men paid 63p each.
- £1.25/£800 = 0.15%, so the poorest two men paid 45p each.
So, that’s what they decided to do. At the end of the week, each man looked in his wallet.
- The rich man found he had £500 in his wallet.
- The second richest two men had £2.44 each left.
- The next three had £1.57 left each.
- The second poorest two men each had £1.12.
- The poorest two men were left with 80p each.
The next time they go to the pub, the poorest 9 guys say to the richest ‘Look, we could barely afford to eat last week — we need to come up with a fairer way to split it.’
The men worked on the back of napkins, and tried to come up with a system that left everyone with enough money to eat. In the end, they settled on the following:
- The first and second would pay 4p each
- The third and fourth would pay 14p each.
- The fifth, sixth and seventh would pay 27p each.
- The eighth and ninth would pay 52p each.
- And the tenth man (the richest) would pay £286.
At the end of the week, each man looked in his wallet again.
- The rich man found he had £495 in his wallet.
- The second richest two men had £3.28 each left.
- The next three had £2.18 left each.
- The second poorest two men each had £1.61.
- The poorest two men were left with £1.21 each.
The poorest two men were just about able to afford bread and cheese for their families. The second poorest were able to buy eggs. The next three could buy some ham to have with their bread, cheese, and eggs. The second richest two men could also buy some salad items.
The rich man complained about how unfair the tax system was.
And that, ladies and gentlemen, is how the tax system really works.