Did Ed Balls announce the nationalisation of the top 100 monopolies or something at yesterday’s Fabian conference? I was there, and he assuredly did not. To make sure the dangerous radicalism of putting 5p on the top rate of tax was boxed in, he even ruled out renationalising energy companies and the rail. And yet, according to Lord Myners in today’s Telegraph restoring the 50p tax rate for earners in receipt of an income on excess of £150,000 is “old Labour” and the “politics of envy“. As the good lord is on the boards of several successful firms, I think he has an interest to declare.
There are a few things here that are well tread, but need saying anyway. Firstly, when you earn piles of cash, more than the £150k mooted here, will you miss an extra 5 pence in the pound? Remember, everything you earn up to circa £34k is taxed at the basic rate. Any money earned after that is taxed at 40%, which goes up to 45% after £150k. From this year more people will fall into the 40% tax bracket as the threshold is reduced to £32,011 and next year (2014-15) £31,866. Rather than cost the rich, Osborne would much rather more top-end middle income people be brought into the higher rate. Who’s the party of taxes now?
The second point is the “disincentive” of higher rate taxes. The best and brightest will go elsewhere, apparently. Really? Are there jobs enough in the rest of the EU for investment bankers and money alchemists? What evidence is this based on? The non-existent flight of top earners from UK shores during the three years the 50p rate was in operation? Why didn’t high earners flock to Albania, a country enjoying a 10% flat tax rate?
“It will damage the economy!” No it won’t. There comes a point where you do not spend all or most of your disposable income. If you’re rich enough, there’s only so many yachts, houses, holidays, cars one can buy. So the cash piles up in the bank. The situation we have with Osborne’s tax cut for the rich is that this was paid by cuts to tax credits, by freezing social security payments, and holding down wages for public sector workers. That tax cut meant less spending by people who pay out greater proportions of their income, which in turn sucked demand out of the economy and depressed growth. Meanwhile the rich remain on investment strike. Productive money became unproductive money. Reversing and using that cut to give back what was taken would boost the economy far more than lower rates for the rich ever could.
We’re also talking about income tax here, not corporation tax. I defy Myners and his city mates to provide any evidence that British rates of income tax deter small business people from striking out on their own. On inward investment, neither is there any evidence international companies are put off from doing business in Britain. Remember, if a firm locates here the 50p rate is not a tax on their profits, but on the income of their (presumably domiciled) employees. I’m sure people like Katja Hall, chief wonk at the CBI are aware of this even when they make such a stupid argument. Whether they are temporarily muddled or deliberately disingenuous is something you can judge for yourself from the regularity these points appear.
Lastly, the Telegraph notes “the level of tax avoidance as high-earners dodged the increased rate was so great that HM Revenue & Customs predicted that reducing the levy by 5p would only cost the Exchequer about £100 million.” Arguably the shortfall of the tax rates targets had more to do with (temporary) falls in wealthy incomes as Britain slipped into a second, brief and entirely avoidable recession. But if not, so what? If more rich people are dodging taxes, that demands both a tightening up of existing regulations and criminalising more of their alchemical practices. Not cutting the number of tax inspectors and analysts at HMRC might be a good idea too.
In short, the nonsense about the 50 tax rate is just that. It is perverse that our “all in it together” government has hacked away at social security and the public sector while giving the very wealthiest a tax cut. Ed’s announcement yesterday, which has been an open secret for ages anyway, is a welcome blow against the entitlement culture at the top of the corporate tree. It’s popular too – even Daily Mail readers think so. And remember, who generates the wealth that gets siphoned into fatcat pockets anyway? It sure as hell doesn’t come about from meetings clustered around PowerPoint presentations or shouting “sell!/buy!” down a phone. Given the inchoate anger and squeezed incomes out there in the real world, the likes of Myners ought to feel grateful people are content – for now – with seeing more of the rich’s crumbs brushed into the public purse. But carry as they are and our captains of industry might find more demands for the bakery.
This post was first published at A Very Public Sociologist
