The BBC News Website is reporting “Ministers considering 50p rate income tax cut” in the run-up to next Wednesday’s Budget. The Chancellor has described the rate as ‘temporary’ but has also said that its abolition is not his main priority.
There is an interesting difference of opinion in the BBC’s story, as on the one hand critics of the top rate are quoted as saying that ” (it) deters entrepreneurship and investment, and that it would raise little tax anyway”, whilst HMRC said when it was introduced in 2010 that it would raise more than £2 billion a year, which is not my idea of “little tax”.
If there are 308,000 people paying the 50% income tax rate and HMRC is correct in its estimate, they are paying an average of £6,500 each (I am assuming we are standardising on the US definition of a billion). That looks a remarkably low figure, implying that the average amount by which the income of the relevant taxpayers exceeds £150,000 is only £65,000. I think this points up at least one serious contradiction in the ‘anti 50%’ argument:
1. If our entrepreneurs and investors are so lily-livered as to be deterred by an average additional tax bill of £6,500 a year it is no wonder we are in such financial trouble.
2. How much worse is it in reality to have HMRC taking half of your income above £150,000 as opposed to two-fifths? Is that such a massive deterrent?
3. If the rate raises so little tax, how can it be such a big disincentive?
4. Given that it can be relatively easy for entrepreneurs to control the level of their personal income for tax reasons, why should they be concerned anyway?
The New Statesman is in no doubt about the potential electoral damage that such a change might inflict on the Conservative party, and I suspect it is correct in its analysis. Already under suspicion of tolerating ongoing excesses from banks and other multinationals, imagine what a gift to the Opposition a tax cut for the richest 1% of people in the country would be. So surely the Chancellor won’t do this, will he ………..