There is a piece in today’s Daily Mail reporting that Ed Balls, seen by many as Chancellor in waiting should Labour win the election, is pushing for a reduction in the threshold for the 50p tax rate. Since early last year those earning over £150,000 have been subjected to the 50p rate. However, Mr Balls now intends to include all those who earn over £100,000 per annum. This, the Treasury claims, would generate £1.13bn in tax revenue.
All this seems to suggest that the issue of tax will play an important role in the up coming election. Labour appear to firing out an early shot in an attempt to sweeten those on lower incomes. However, the idea that an increase in the amount of those paying a 50p rate would help the economy seems far-fetched under closer inspection.
Firstly, it is thought that up to two thirds of those currently liable for the 50p rate will avoid paying because they can afford to pay professionals to manage their money in a tax efficient way. Would they be quite so prepared to pay for these money managers if they didn’t stand to lose so much income in tax? Secondly, increasing the rate on high earners drives them out of the country, thereby deny the UK of the overall economic benefits that their wealthy presence brings.
The state of the UK’s budget deficit dictates that some fairly radical measures must be taken in order to reduce the burden. But even if all those liable for the tax ended up paying it, it would at best only produce a fraction of the revenue, the claimed £1.13bn, necessary to balance the books. That said, one can see why Labour are interested in pushing a “tax on the wealthy” agenda because the alternative, admitting to the cuts in public services that will inevitably have to be made after the election by whoever wins would hit their core vote hard. Surely, the way forward is to encourage a culture of aspiration where individuals and business are incentivised into as much wealth creation as possible, rather than the current state of affairs where they are penalised.