The Unkindest Cut of All
I have been following the debate on the much ballyhooed cut of the top rate of tax with interest. The people debating it seem terribly intelligent and represent august and entirely neutral organisations like the Taxpayers’ Alliance and the Institute of Directors. Who am I to butt in?
I am no expert on the subject. But I have listened to the discussion and I have a couple of questions. They may be naive – forgive me.
The arguments against the 50p rate of tax for a personal income above £150k a year were explored in the Mirrlees Review by the Institute of Fiscal Studies (for which you can purchase corporate membership here - a measly £10k a year secures you guest speaker status at their events).
As summarised by Polly Curtis, the report suggests that a 50p rate of tax would encourage those subject to it to minimise the amount they pay by
• Changing the form of their remuneration.
• Contributing more to a pension (maximum of £40bn) or to charity.
• Converting income into capital gains.
• Setting themselves up as a company.
• Investing in tax avoidance.
• Leaving the country or not coming here in the first place
The suggestion is that people on a personal income of more than £150k a year only optimise their tax affairs and take such measures at the 50p rate. It is a magical elasticity figure. So, since the rate is 50p at the moment, they are doing all these things right now. It follows that, as soon as the rate is reduced to 40p, they will all (or many will) stop doing these things. Is this the argument, really? REALLY?
I know several people on such incomes. They all employ terribly talented accountants whose sole mission is to explore ways to minimise the tax their clients pay.What is being advanced here is the absolutely incredible suggestion that, if the rate is reduced, rich people will turn to their accountants and say “don’t bother any more”.
No explanation is offered as to why during the 9 out of 11 years of Thatcher, when the top rate of tax was 60p to the pound, the country’s tax receipts did not go into spectacular collapse. Indeed it is never mentioned.
No discussion strays into an exploration of the incredibly advantageous corporate tax regime in this country – which an amateur like me might think provides an incentive for these captains of industry to be based here.
No comparison is offered to tax regimes internationally, many of which are displaying an appetite for taxing the rich post-2008. These people will simply up and go “somewhere else”. Bali-Hai, perhaps.
Instead we hear a lot about wealth-creation and trickle-down effects. Please note – the same effects do not apply to the poor. Someone on £160k a year is likely to put the grand they would save with a 40p rate back into the UK economy; to create wealth and trickle it down. But if one were to increase the benefits of somebody on the breadline by a grand – well… they are likely to squirrel it away under their wife’s name (who luckily resides in Monaco).
The argument, stripped down to its bare bones, seems to be “if you try to tax the rich, they are likely to work harder to avoid it, so let’s not bother”. An argument which our Chancellor, apparently, takes fully on board.