Starmer’s earnings are smaller than Sunak’s but his effective tax rate is higher

Sir Keir Starmer is paying a far greater proportion of his earnings in tax than Rishi Sunak despite the Prime Minister making 10 times more.

The Labour leader paid £118,580 in tax on earnings of £359,720 over the last two years, the summary of his tax return showed. That made his effective tax rate 33%.

Mr Sunak, who earned £3.7 million over the same period, paid a rate of about 22% in tax because most of his earnings came from capital gains.

Income tax on salaries is charged at a higher rate than on capital gains, which cover assets such as properties and shares.

Sir Keir released the summary of his tax affairs on Thursday, in response to the Prime Minister who published his a day earlier.

Over his two years as Labour leader, Sir Keir earned £359,720, from his income as an MP and leader of the Opposition and from book royalties.

The total also included capital gains last year of £85,466, which he said was linked to the sale of a house he helped his sister buy.

Dan Neidle, the founder of the Tax Policy Associates think tank, said: “The tax system favours capital gains. I think maybe people would regard that as unfair.

“It also distorts behaviour, with people structuring their arrangements to receive gains not income. That’s an undesirable way for a tax system to work.

“Nigel Lawson (then chancellor) equalised rates in 1988, and for 20 years capital gains tax and income tax rates were the same. Probably the UK’s most successful 20 years of recent times.

“So it’s not credible to say it would be an economic disaster to equalise rates.”

Discussing Sir Keir’s finances, Sarah Coles, who is head of personal finance at Hargreaves Lansdown, said: “There’s nothing out of the ordinary about this tax statement.

“It doesn’t look as though there’s any clever work going on to ensure he makes money as a capital gain rather than as income, it’s just the kind of tax statement you’d expect from someone with relatively straightforward tax affairs – albeit one who is on a fairly chunky salary.”

Mr Sunak, who released his tax returns on one of the busiest news days of the year, as Boris Johnson was grilled by MPs over whether he lied to Parliament, paid more than £1 million in UK tax over the previous three years. His earnings totalled £4.7 million.

Defending the timing of the release, the Prime Minister’s spokesman said: “There was a number of bits of work to finalise and make this as transparent and easy to access as possible. The returns were published once that was ready.”

Most of Mr Sunak’s earnings related to a US-based investment fund listed as a blind trust, which was formed to avoid a conflict of interest between his income and his position in Government.

The Prime Minister dodged a question about whether capital gains tax should be higher during a visit to North Wales.

“I said I would publish my tax returns. I was pleased to be able to do that yesterday in the interest of transparency,” he told broadcasters.

The Prime Minister’s official spokesman said the returns showed Mr Sunak paid a “considerable amount” in capital gains tax.