The 50p tax is back on the cards with Ed Balls stating his intention to bring the top rate back again. It’s popular and Labour know it – but it’s also deeply unfair and fiscally reckless.
Most of us know the stats, but here they are again if you need reminding:
– The top 1% of earners already contribute more than their fair share. They currently bring in 29.6% of all income tax revenue.
– In 1978, the top 1% of earners were paying up to 83% tax on parts of their salary, but bringing in only 11% of government income tax revenue.
– The top 10% contribute around 60% of income tax revenues, whereas the bottom 50% contribute under 15%.
Table taken from the Spectator’s Coffee House Blog.
So, in terms of balancing the books, we already have the majority of our revenue source resting on the shoulders of a small group of globalised, geographically mobile people. Running a small business myself, I am always conscious not to be too geared towards just one or two clients. Back in 2008 I had 50% of my revenue coming from just two clients – who overnight crashed out in the 2008 recession. I won’t make that mistake again – and yet it’s mistake Labour wish to indulge in.
Over 90% of the people on the Times 1000 Rich List are self made – so the 50% tax is essentially aimed squarely at those who have the bare faced cheek to provide goods or services that are popular with customers. I have the pleasure of knowing a few of these very successful people, and saw first-hand how the first 50% tax rate a few years back affected them (and us). Here are three case studies (names have been changed):
Peter (single, late 30s) was (and still is) a derivatives day trader from Essex (last of barrel boys; no degree from Oxbridge; etc). He was making between £5 to £8m a year and handing over £1m to the government in tax annually. When Darling proposed the 50% tax rate, Peter wasted no time in packing his bags and left for a Canton outside of Geneva where he negotiated a significantly lower level of tax. He did not need to be in London as his business was on his mobile phone and a couple of computer screens. He has not returned to the UK. Good riddance you may say, but every year we are now over £1m short – 30 fewer nurses a year then. Labour continues to assure us that higher taxes don’t drive people abroad.
Giles (married, mid 30s) owns a small I.T. company. He earns around £2m a year. He does need to be in the UK, so instead of paying 52p (tax+NIC) in the pound to the government he paid clever tax accountants to set up a perfectly legal, complex off shore structure that avoids him paying even the 40p tax rate now – a rate he was previously happy (albeit begrudgingly) to pay. He is now “off the grid” as they call it – thus any analysis by the OBS/IFS to see how much the top 1% pay in tax now do not count him in as technically he does not flag up on their screens as earning over £150K.
Josh (married, early 40s) owns his own digital media company. He has a big mortgage at around £11k a month and high outgoings, so used to take out over £500k a year in dividends, paying a hefty tax bill of over £190k in the process. His business is going well. However, when the 50p tax rate came in, in order to bring home the same amount of cash net to pay for his outgoings, he had to take more out of the company in dividends – meaning he has less money in the company to invest in new staff. He told me that year that he could have taken on a couple of new hires but had to delay this due to the increased tax burden. So, the tax meant he delayed increasing his staff costing two people potential jobs.
So, here you have it – evidence, albeit anecdotal, that people who were happy to pay the 42p tax rate were driven out of our tax system by the hike to 50p.
We appear to despise and envy the company director or successful businessmen when they attempt to make money, but take a different approach to musicians and sportsmen. We expect the Labour Party to fuel class warfare, it’s what they were founded on, but why has the Conservative Party, previously the party for wealth generators, not made the case for lower taxes in Britain?
Osborne only has himself to blame for yet another populist trap being laid at his door:
– It was Osborne who agreed with the socialist paradigm that tax cuts always cost the Government revenue. Once you start agreeing with the other side’s rules you have to play on their field. In fact, in the first month after the rate was reduced to 45p, HMRC saw an extra £1.3billion come into its coffers.
– Had Osborne promoted the Laffer curve argument that tax cuts can yield more revenue (as he has done when he’s cut Corporation tax), using examples from the 80s cuts in the UK and US, then he could have helped removed the toxic class issue.
– Osborne has also bought into Balls & Co’s rhetoric, in that every year he’s been Chancellor he has boasted on Budget Day that his budget will make ‘the rich pay more in this budget than the last budget’. What he should have been saying is that the ‘rich’ (and I’d not use that word – ‘successful’ is better) already contribute more than their fair share as I have already illustrated.
UKIP’s brand is by no means perfect, but one thing we do not suffer from is the stigma of being the ‘party for the rich’. We have a broad base of support, from the tycoons to the unemployed. It gives us a unique opportunity – as a libertarian party – to be the force in British politics that continues to fight for small government and a lower taxes for everyone.
Free from the constrains of the left / right class war we see being played out currently, we in UKIP should continue to promote a flat rate tax agenda. We need to appreciate that the tarnished Conservatives are too scared to be radical here.
Let us not fear losing our working-class support from up and down the UK. These are, in the main, the people who used to vote Tory in the 80’s. They had an affinity with the likes of Norman Tebbit and Keith Joseph, and they voted Conservative not because Thatcher was cutting the top rate of tax but because she appeared strong on Europe, on Law and Order, on Immigration, and fighting vested interest groups like the Trade Unions. Most of all they voted for her because she spoke to the aspirational. To the people who wanted to retire with a little (or a lot) more than they started out with, and who wanted to see their children do even better. We alienate no-one by proudly stating that we believe people should be free to keep more of their own hard-earned money.
UKIP can capture votes from across the social strata. But we need to avoid the temptation of playing (as we have done on occasion), to the core socialist Labour supporter base in the hope that we can hurt Miliband, thereby forcing Labour into also calling for a referendum. That might be great for short term politics, but for the sake of the country long term, let us stick to our libertarian, small government foundations.