Harris leads charge of the 50p brigade

The Guardian reports that Evan Harris MP has tabled an amendment to the Tax Commission motion at conference – he is apparently seeking to retain the 50p top rate of tax.

Evan appeared on the Today programme a couple of weeks ago to call for the retention of the 50p top rate as an easily understandable, symbolic gesture. The opening editorial of the August edition of Liberator magazine also seemed uneasy at the idea of dropping the big five-oh.

It always looked likely there’d be a feisty debate over this particular aspect of our tax policy, though in a piece for Lib Dem Voice recently, former FPC vice-chairman Alex Wilcock argued “tax is an important battleground, but when our whole political direction is up for grabs, it’s bizarre to focus on one detail in one policy area and to ignore the rest”.

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80 Comments

  • Brian Wright 13th Sep '06 - 10:24am

    The point that seems to be continually missed in the taxation debate is that the share of overall tax paid by pensioners on fixed incomes is going to rise constantly throughout the next 30 years (unless there are more Poles). The Party’s proposals will give the pensioners the chance to receive a basic income and then choose how they spend it. Brian Wright

  • Lynne hits the nail on the head. As a party we need to move on from letting simplicity – the “does it fit on a Focus headline” factor – dictate our policy. That isn’t to say we should have complexity for the sake of complexity, or that we shouldn’t be concerned with how to sell our policy. But we’ve allowed the tail to wag the dog for too long and at the last general election, it really started to show.

  • Stephen Tall 13th Sep '06 - 11:27am

    Agree with Lynne and James. The crux here has to be what will be the best way of delivering social justice within a strong economy.

    What’s radical about the proposals – and why it needs a shift in the Lib Dem mind-set – is that it shows social justice does not always have to be about raising taxes. Taking 2 million low-paid out of tax entirely seems to me a bold move – and easily sellable via Focus too.

  • Andrew Duffield 13th Sep '06 - 11:46am

    What is the point of a totemic tax policy if it is avoided by the rich, unsustainable in a global context, and damaging to the very things we allegedly want to encourage – enterprise, endeavour and entrepreneurship. There are more effective and efficient ways to tax the rich without penalising productivity. Retaining a 50p tax rate flies in the face of economic realities, social justice and political common sense. We should be taxing the value people remove from society, not the value they add. Tax unearned wealth, not earned income!

    Like the Emperor’s new clothes, this party has blindly admired the illusion of income tax and its fabled origins in “ability to pay” for too long. The naked economic truth is that PAYE is paid by your employer and passed on to your customers. It’s the same for the self-employed. Those who really pay income tax – and all taxes on wealth creation – are the end users; the young and the old, the unwaged and the poor, the excluded and those at the economic margin. Still think income tax is progressive? Think again.

    Our ‘Green Switch’ points the way forward, but with 4p LIT still in prospect, a 2p cut in national income tax doesn’t shift things nearly far enough. The tax paper wrings its hands over generational inequity – but its the young and asset poor who will continue to pick up the tab while the asset rich get a tax break to see them through retirement. Look at today’s headlines on mortgage defaults and the ever increasing levels of national and personal debt that the next generation are expected to shoulder. Factor in the long term swindle that PFI represents and the last thing aspiring young workers need is the prospect of extra income tax, locally or nationally.

    There is only one class of taxes that cannot be passed on and that has no disincentive effects – those based on economic rent. And they’re eco-friendly too! That’s what we need more of. The quicker we shift away from income tax the better, including the 50p rate. Roll on ‘Green Switch 2′…

  • I take the opposite view to Stephen, Lynne and (less surprisingly) Andy.

    What is the point of gathering together all manner of expertis e in a key policy area (tax), and proposing what is quite a radical (if imperfect) policy, if the message is deliberately blurred by removing the clearest, simplest message we have on the matter? I’m all for policy messages telling the picture for campaigning purposes, but this is ridiculous.

    While proper forms of wealth tax, LVT and so on are a good thing (and sadly the paper only calls for further work in this area, thus avoiding tackling the generational theft issue), there is absolutely nothing (sorry Andrew) that shows a 50p top rate of income tax being any easier to avoid than the inner workings of CGT.

    It’s a classic tale of the Westminster tail wagging the dog – people second-guessing the electorate because of noises off from elsewhere.

    And Andy, you’re wrong about the origin of this 50p proposal. The idea of this modified proposal has been floating around the Tax Commission for months.

  • Andrew Duffield 13th Sep '06 - 2:04pm

    The simple, winning message is surely:

    “Lib Dems will cut taxes on work by taxing wealth and waste instead”.

    Apart from the fact that the work bit is going the wrong way (thanks to LIT) and the wealth side has yet to be properly developed, it’s brilliant.

    Who knows, this time next year we might even have a tax policy that stacks up and makes sense too.

  • jamesgraham 13th Sep '06 - 2:07pm

    “It is intellectually inconsistent that at the same time [as green taxes] we should be increasing the tax burden on employment.” Which flatly contradicts adding extra income tax at a local level, in the same paper – Norman’s amazingly lucky that no-one mentioned it

    Scrapping our existing Local Income Tax policy (which is NOT the same thing as abandoning the idea of local income taxes altogether) is the only logical conclusion of our new tax policy. It is amazing how the media have leapt on the 50p rate, yet have missed this though.

  • I agree with James on LIT – and have said so throughout.

  • Andrew Duffield 13th Sep '06 - 2:33pm

    Of course, the other logical conclusion is that we cut national income tax by a further 3p (i.e. 5p in total). That would get us off the 4p LIT hook, guarantee the tax shift “off people” that we are promising, and open the way for a phase 2 green switch via a national LVT. At least the tax motion makes allowance for us to develop matters along these lines. Otherwise we’re intellectually (and politically) stuffed!

  • Evan Harris 13th Sep '06 - 3:36pm

    Lynne Featherstone said:

    “It’s quite a critical decision. 50p – completely brilliant totemic message that we are about fairness versus the new policy which is complicated, but if I have got it right, actually delivers greater redistribution as well as the switch to polluter pays etc….

    …The key will be to get the message that it’s better than the 50p policy across in an equally sexy way.”

    BUT, she is wrong. The package on offer delivers less not greater redistribution than the package would deliver if amended to include a 50p rate raising £2bn more to be re-distributed to the poorest taxpayers. The difference is – surprise, surprise – £2bn less redistribution without the 50p rate.

    Her misunderstanding arises because she – and others – assume that we are calling for the retention of the manifesto policy which was 50p rate to pay for personal care and abolish tuition fees. Those were means-tested charges and therefore the manifesto policy was less redistributive than tax reform. When doing tax reform you have shift a lot more money than small increases in tax take to get small increases in public spending which is why the overall £10bn tax shift needs every £2bn raised fairly as it can get!

    In terms of the message the most progressive way the £20bn is raised is capital gains tax taper relief abolition and the “pension grab” which is the abolition of higher rate tax relief on pension savings. Even Lynne would find those difficult to sound understandable, let alone sexy!

    Evan

  • Evan Harris 13th Sep '06 - 3:41pm

    James G said
    “As a party we need to move on from letting simplicity – the “does it fit on a Focus headline” factor – dictate our policy.”

    But a top rate tax of 50p on very high earners is about as principled a policy as you can find. It is also practical – ie understood and coherent with the message which is tax fairness. It was a popular policy at the last election, it is something the other parties will not claim to copy and guarantees us positive – albeit edgy – media coverage.

    That makes up the dog, not the tail in my opinion. It is an ideology which says – lets not say anything about top earners so as not to scare Times leader writers which is tail wagging dog, I suggest.

    Evan

  • Evan Harris 13th Sep '06 - 3:52pm

    Andrew Duffield said “What is the point of a totemic tax policy if it is avoided by the rich, unsustainable in a global context, and damaging to the very things we allegedly want to encourage – enterprise, endeavour and entrepreneurship. There are more effective and efficient ways to tax the rich without penalising productivity. Retaining a 50p tax rate flies in the face of economic realities, social justice and political common sense.”

    No economic commentator is suggestingb that there would be serious evasion or avoidance of an extra 4p (40p higher rate + 1p NIC + 5%LIT) on income over £150,000. That would be an argument against all progressive income taxation – not just a top rate. Incomes over £150,000 have not great deal to do with “productivity” at large, and very little of it is “earned” even in a generous view of the term. The tax package cuts cuts the basic rate by 2p, raises the upper-rate threshold from £38k to £50k and both these are not that progressive as they benefit high earners. How can it be argued that correcting some of this by a 50p top rate is anti-social justice?!

    Political common sense is about having policies that strike common people as sensible and have a chance of being publicised in the air war. Green tax switch does that for “greener”, Capital Gains tax Taper reform does not do it for “fairer”. The 50p top rate tax does.

  • I have been all for ditching the 50p tax for years. It simply doesn’t stack up to tell people you’re going to take half their earned income and then expect them to meekly support you and like it or not, those high earners are opinion formers who we need on board. My opposition to the 50p tax is therefore entirely cynical as I’d like to see a LD government sometime soon.

    As for LIT, no.

  • Evan Harris 13th Sep '06 - 3:55pm

    Tristan needs to provide evidence that even wrongly being placed in the “tax and spend” bracket – or I might say the “fair taxation” bracket or the “honesty about taxation” bracket is bad for us electorally. The polls suggest otherwise and what our party needs is principled popular polices which are newsworthy and understood. Even if the policy was unpopular (which it is not) we can not deform our policy to avoid being labelled by our tabloid and political enemies.

    Evan

  • Evan Harris 13th Sep '06 - 3:58pm

    Alex Singleton Says:

    “A 50 per cent tax cut [rate?! EH]would not increase fairness – it would reduce tax revenue and slow down growth, hitting the poorest.”

    No, No and No – according to the Institute of Fioscal Studies and anyone else other than Adam Smith

    Evan

  • Rob Fenwick 13th Sep '06 - 4:01pm

    “EH” in this case presumably being your initials, and not an expression of outrage, Evan! 🙂

  • Evan Harris 13th Sep '06 - 4:03pm

    I fear that the message of the amendment has not come across clearly since Alex W seems to think it is instead of the proposals in the Tax paper on CGT and pensions tax relief, etc. It is not. It is as well, which is why it DOES make the redistibution element more effective – both by quantum (£2bn more) and by the basis that the revenue is raised (though higher earners as well as the wealthy and the car drivers).

    Evan

  • As with most issues, the issue is not one of fact but of perception – and spin. If voters wish to believe they are having half their income taken from them there is nothing we will be able to do to change that belief.

    Similarly with LIT, 4p in the £1 is tiny but it compares badly with what people currently pay so any arguments about fairness to the unwaged are completely lost in the white noise of indignant outrage from Middle England [Scotland, Wales and NI…]. Margaret Thatcher found this out in 1990, remember?

  • Andy, which voters in West Oxfordshire believe we would take half their income from them?

  • Evan: “I fear that the message of the amendment has not come across clearly since Alex W seems to think it is instead of the proposals in the Tax paper on CGT and pensions tax relief, etc. It is not. It is as well”

    Oh good god…

    It has always been an embarassing policy. And we have surely moved on massively from the idea that penury is the bane of the public services. (Brown micro-management might be.)

    My view is that there will be tax flight at 50p. I don´t argue that it will be massive – but then no one argues that the take from such a tax without tax flight will be massive either.

    If we are going to progress we need to position ourselves as a party able to deliver a performing economy. And the tax proposals take us in that direction.

    Agree with all those opposed to LIT.

  • Oxonian, your argument’s illogical.

    You talk about trumpeting the 50p top rate – yet I see no mention of Capital Gains Tax taper relief (the big tax rise in the Tax Commission paper).

    Yes the proposals are redistributive but the aim is to take a lot more than 2 million people out of tax altogether. The 50p would get us a fair way towards that… but you are against?

    The arguments about tax flight at 50p are a myth as can be seen from several of our European neighbours. Laffer Curves and all that stuff from the Flat Tax Handbook may be all very clever – but they don’t mean much in practive.

  • Willhowells says that a 50% rate does not stack up. I interpret that to mean: you cannot or should not say to anyone that you are going to take half of any increment to their earned income. But that is precisely what we do now with some of the poorest earners who face effective marginal rates of between 70% and 100%. When their incomes increase and their benefit entitlement is reduced they are subject to an effective tax rate well above 50%. Just ask anyone in receipt of housing benefit who works for a living and who tells their housing authority that their income has increased. A 50% income tax rate on the top tranche of income received by Britain’s highest earners is an entirely different matter and does stack up.

    One of the most memorable pieces I have read on the subject of income inequality and distribution was written by Jan Pen. It was entitled ‘A Parade of Dwarfs (and a few Giants)’. It compares the distribution of income with the distribution of other personal attributes. While there are no real life physical giants (no one I know is over 7 foot) I do know of people who are, by the standards of everyone else’s income, many miles high. Pen’s piece helped to convince me that a Liberal society would be one in which much greater concern was manifested about removing the 50% rate on the incomes of the poorest earners. We are still – even with our new tax proposals a long way from doing that. I am flabbergasted at the squemishness and political anxiety that is exhibited about taxing the final tranche of income going to those who earn more than 100,000 or 150,000 a year.

  • Andrew Duffield 14th Sep '06 - 12:53am

    In reply to one of my previous diatribes, Evan says: “No economic commentator is suggesting that there would be serious evasion or avoidance of an extra 4p (40p higher rate + 1p NIC + 5%LIT) on income over £150,000. That would be an argument against all progressive income taxation – not just a top rate.”

    That’s exactly what I am arguing against! Where is the evidence that income tax is either progressive or redistributive? In its 200 years of existence, income tax has not redistributed one iota of wealth from rich to poor – otherwise the wealth gap would be narrowing, not widening. And the reason it will never redistribute is because it is passed on in the cost of goods and services, disproportionately penalising the poorest most of all. This is basic economics.

    Evan continues: “Incomes over £150,000 have not great deal to do with “productivity” at large, and very little of it is “earned” even in a generous view of the term.”

    Productivity (or wealth creation) is the output of labour and capital applied to natural resources. As a factor of such production, labour includes intellectual application, risk-taking propensity and unique skills. The point is that pay for such labour is a measure of economic value, determined by the market and 100% “earned”! Certainly, some pay is “unearned” – in other words it is not the rightful reward for labour but accrues to monopoly ownership of natural resources. One of the many shortcomings with income tax is that it simply cannot distinguish between the two!

    Evan goes on: “The tax package cuts cuts the basic rate by 2p, raises the upper-rate threshold from £38k to £50k and both these are not that progressive as they benefit high earners. How can it be argued that correcting some of this by a 50p top rate is anti-social justice?!”

    Here’s how; anything we can do to shift the burden of tax off earned income and onto unearned wealth is, by logical deduction (see above), in the interest of social justice. It follows that anything which moves tax the other way – including a 50p rate – must work against social justice in the long run. This is the empiric legacy of income tax.

    Evan concludes: “Political common sense is about having policies that strike common people as sensible and have a chance of being publicised in the air war. Green tax switch does that for “greener”, Capital Gains tax Taper reform does not do it for “fairer”. The 50p top rate tax does.”

    Since income tax doesn’t redistribute wealth and ultimately penalises the poor, there is no rate that can be considered “fair”. Publicity is not a problem for radical policies and CGT taper reform will never be in that league, admittedly! However, taxing the unearned wealth that accrues to privileged possession of “the commons” strikes me as exactly the sort of thing that “common people” might find entirely sensible – suitably dumbed down of course!

    Tax wealth, not work! Now there’s a slogan for starters…

  • Tabman – where is the evidence that CGT is any harder to evade than taxation on income? Look at the way inheritance tax works – most of those who can afford to, avoid that perfectly easily.

    Andrew Duffield states that income tax isn’t redistributive or progressive. Of course it hasn’t been since 1997 when Labour pledged not to increase it – instead they’ve hidden tax rises in indirect taxation, which is exactly what has widened under Labour/Blair.

    Neither Andrew or Toby Philpott seem to have read up on taxation and income distribution and compared them. The highest income earners pay around 34% of their income in taxation, compared to 39% for the poorest.

  • Evan Harris 14th Sep '06 - 9:34am

    Toby,

    If you beleive in evidence-based policy (well, alright, evidence-based pragmatism since there is an argument of principle in favour of the 50p rate you have not addressed) you have to provide evidence of for your view that a top rate tax of 50% on high incomes is unpopular, even ste out in those terms, and not specifying the £150,000 threshold and that the package will cut income tax at all other rates. The evidence is overwhelming the other waya nd this was shown at the last election, where the 50p rate was popular even before people were told that it would be spent on free personal care and tuition fee abolition.

    As for drafting our policy on the basis of what the right-wing tabloids (“Bulgarians”, really!) might say about it, that is not how Liberal Democrat policy-making work – on civil liberties, human rights, equality, penal policy, public services or tax. Thank God. The only way to handle the pressure they seek to put on us is to utterly reject it and never even acknowledge it, let alone concede to it. It would simply feed the beast.

    The number of over £150,000 earners is 1% of all tax-payers – about 300,000 people. this figure is obtained from the Treasury tables whcih give 400,00 for £100,000+ and 125,000 for 200,000+. The same tables show the sum raised to be £2.1bn.

    Most people – about 99% would get a national income tax cut under our proposals (even with the 50p rate), due to rise in threshold, abolition of 10p rate, 2p cut in basic rate and rise in 40p rate threshold. Even if 10 times as many people feel they will lose out – that still leaves 90% not thinking that. Of course scrapping council tax and bringing in LIT will create more losers and significant more perceived losers but we should stick to our LIT guns (at least on that basis). If tax unpopularity was the main criteria for deciding policy we should in order be considering: 1) scrapping council tax 2)abandoning LIT. We have rightly chosen 1 not 2.

    Curiously the only tax rises that have got people on the street were poll tax (cf council tax) and green tax (car fule protests). 50p top rate seems a bizarre hate-target. Stick to your Bulgarians!

    Evan

  • Rob Fenwick 14th Sep '06 - 9:43am

    Just wanted to drop in a ‘big up’ to Will Howells for fixing some problems with this thread last night while I was away from my PC! Obviously I need to get a team of co-admins in sooner than I thought, if you people are going to try and indulge in formatting your comments 😉

  • Evan Harris 14th Sep '06 - 9:51am

    Oxonian three arguments are irrelevant, rubbish and illogical in that order.

    “1. The proposals in the TC paper raise three times more from the rich than the 2005 manifesto proposals did. They are 3 times more redistributive.”

    This is not the point. The amendment is ….not… a…reversion…to…the… 2005…manifesto….policy. Why can’t people understand that!?! (Sob!). yes the tax raising plans in the TC paper raise three times as much as the manifesto plans – but the manifesto plans were to tax to raise cash to spend on specific items. That needed £3bn net. To shift the burden of a £400bn tax system you eed more than 1%. The 50p amendment would add £2bn to the quantum and be 30% better at doing the job.

    It is wrong to say that raising 3 times more money than X for tax cuts is three times more re-distributive than X. It depends where how you raise the money and what you do with it. Much of the money is being spoent on income tax cuts which is not very re-distributive, and only some on raising the lower threshold which is more so, albeit quite inefficient at it. the 50p is among the the most redistributive ways of raising the cash and is spent on raising thresholds at the bottem end, which is redistributive. Raising £4X more progressively + spending it more progressively is more progressive than raising £3X quite progressively + spending it quite progressively.

    “2. I don’t understand why Evan seems to think that it’s an attractive proposition to say that “we’re going to tax you at 50%” when really the only impact is increase the take on such high earners by a measly 4% (40p + 1p NIC + (say) 5p LIT = 46p already). It’s as if we’re looking for least attractive message possible. How’s that good politics? The amendment would raise around £1.5bn extra – v little gain for plenty of pain.”

    This is just wrong. There is no evidence that 50p top rate tax is not popular. Unlike all our civil liberties and penal policies for example. Oxonian should go away do some opinion research and urge us to lock ’em up and ban things.

    “3. If you want a ’sexy’ redistributive narrative here it is: “2 million of the poorest people will be taken out of paying tax altogether”. Redistributive and popular – good eh?”

    With 50p amendment it would be “Over 2 million of the pooerest tax-payers (careful with your fact-check now Oxonian!) taken out of paying income (careful, again!) taxation altogether”. The message is similar, but – how can I put this politely – IT IS NO GOOD HAVING A MESSAGE IF NO-ONE HEARS IT! So the 50p rate is a good way of getting the your excellent message out.

    Evan

  • Oxonian fact check needed again

    “The earnings from 50p (approx £1.5bn even without assuming any “tax flight”) would take very few additional people out of tax. The paper talks about moving towards a threshold equal to the nat min wage – but that can’t be done overnight with or without your 50p rate.”

    The earnings from 50p are £2.1bn on 2006-7 figures, The “flight” for another 4% would be minimal and less than for CGT. And both the TC and my figures give a mragin of 5-10% overall for this.

    “CGT changes are better than 50p as:

    a) they raise much more

    b) they tax wealth as well as income, rather than just income”

    But the 50p rate is not instead of the CGT changes but in addition. Oh! Have I said that before? Alex Wilcock says it sounds as if we want to tax everything while Oxonian complains that I am proposeing to scrap a good tax. Make up your minds guys!

    CGT taxes wealth not income. CGT and 50p taxes both wealth and high income.

    Oh and we can nearer the £10,000 income threshold faster with an extra £2bn than without it!

    Evan

  • Andy,

    The Party did plenty of polling before the last election of these voters in these seats, and decided on the basis of it to push the 50p tax rate (and what it bought) as a key message. I saw that data as I was a candidate in just such a seat.

    Mind you, if a policy is principled, coherent, distinctive, resonant and newsworthy, it is up to you guys (and the Tories) to prove it is unpopular not for us. Otherwise we would have very few policies and those we had would be crap.

    Best

    Evan

  • Gareth, greetings. Your question about West Oxon is too specific and pointless. The issue is the general perception, not what the good burghers of Charlbury think as we will never canvass everyone and, like it or not, we rely on our national media to get our messages across. The message will be dumbed down to the nth degree and the excellent claim to lower taxes for 2m people will be completely sidelined by the ’50p in the pound’ headline throughout the campaign.

    I am lucky to work for a LD authority which has a very low Council Tax. This cripples us financially but we bang on about it ad nauseum because people like low taxes. Last year we surveyed a number of residents and asked them if they would support higher CT to pay for better services. Surprisingly, they all said yes. However, 309 voters do not an election victory make and I’ve got a shrewd idea how we would have fared in an election if we had bumped up our CT by around 20% as suggested. Low taxes tend to win elections [Please no examples of exceptions, this is a general rule…].

    All that said, I’m all for raising taxes if required and for redistribution but how about we wait until we’ve won, just like Gordon Brown and New Labour did with great success?

    My amendment would be to call for less piety and more pragmatism.

  • Andy (M), there was polling done in key seats for all the Party’s key messages. I’m not going to publish my notes on it here for obvious reasons but it was very interesting. The most opposition to the 50p seems to come from elements of the Lib Dems, somewhat bizarrely.

    Andy (C), I’ve canvassed a fair bit of Charlbury in my time 🙂

    Richard, those who pay the 50p generally get around paying IHT.

    Alex – good point re centralism – but isn’t that a large part of the problem with LIT?? Of course we *could* suggest a half-LIT, half-LVT hybrid – but that could leave us open to attack as ‘Lib Dems’ new tax on….’

    I’m perfectly relaxed with our defence on a programme of CGT and the 50p (though don’t ask me to explain CGT taper relief on the doorstep, I think we need more explanation there). Similarly, the pensions issue is a tax break for the rich and a sop to the baby-boomer generation which already profits from the inflation of the property market at the expense of those under 35.

    Conference’s reaction on LIT will be interesting.

  • Pensions is of course the (millennium?) elephant in the room. But what argument is there that they should benefit from top rate relief?

    The problem with LIT is that the equalisation measures (centralised) are a significant further complication on the present system.

  • Bernard Salmon 14th Sep '06 - 11:51am

    In contrast to the rather fixed opinions being shown by some people in here, I have a rather ambivalent view about the 50% top rate.
    My worry about the proposals in the tax paper is that we might be being optimistic about what would be raised through CGT, as I think there would be an issue about compliance and avoidance. If it were as simple as it claims to raise such sums, I suspect politicians would have done it a long time ago. I also think that we need to do some more work on sharpening up the tax message on the doorsteps, as I think the proposals will at least be perceived as making the system more complicated.
    My concern over the 50p top rate is that although it is clearly a principled policy, if we can raise the same sums through other means, which avoid us being tagged as a party which doesn’t like high earners (even though the new CGT system would be targeted at the most wealthy), then I think that would be a positive move.
    Overall, the issue for me is whether we go for the simple but potentially politically controversial 50p tax rate or the more complex (and possibly less effective due to avoidance) but less controversial CGT route.
    And yes, Evan, I am aware that you’re arguing for an additional £2billion – you also need to convince people like me that that’s necessary.

  • Richard Flowers is wrong about Inheritance Tax. IHT is levied at a flate rate of 40% of the net value of an estate above the IHT threshold. It is not related to either the income of the deceased before death, or to the income of the beneficiaries.

  • Andrew Duffield 14th Sep '06 - 12:27pm

    Gareth, you say:

    “Neither Andrew or Toby Philpott seem to have read up on taxation and income distribution and compared them. The highest income earners pay around 34% of their income in taxation, compared to 39% for the poorest.”

    As I’ve been at pains to point out, income tax isn’t paid by the employee but by the employer, who passes the cost on to the end user. The proportion of tax paid from take-home pay is greater for the poor than for the rich as a result of every other transactional tax on goods and services, none of which are progressive either. It’s the whole tax system wot needs changing!

  • I think most people our age know that by the time we retire, the state will have bankrupted itself subsidising the baby-boomers and there won’t be anything left. 🙁

    Richard I think it’s a legitimate point but am ultimately not convinced.

  • nigelashton 14th Sep '06 - 1:28pm

    Re IHT – I misunderstood what Richard Flowers said. I thought he was referring to the current system. Sorry Richard.

    The tax policy paper does propose radical changes to IHT, including in Section 3.3.2 “Changing the basis on which IHT is charged so that it falls on accessions – that means the tax would not relate to the size of the estate, but to the circumstances of each recipient.”

    I still don’t think that we should allow that to affect what we propose for the highest rate of income tax.

  • I’m mildly alarmed to see consensus breaking out at the end of this fascinating debate. The issue at the heart of the 50p higher rate tax policy debate is not the detail of the policy being considered but the perception of that policy. It is interesting that every news article I have read recently about the forthcoming debate quotes the 50p argument, after which every other detail of the extensive tax proposals becomes a little hurried and fuzzy.

    A crude argument against the 50p higher tax rate policy is that it has been tried and it failed to deliver us much success so it may perhaps be time for something else.

    No increase in the tax burden, an income tax cut of 2p, over 2m people taken out of tax and the likeliest vote winner of the upper tax band threshold being raised to £50k are all excellent – and memorable – policies but all of them will be lost in the 50p debate.

    Detail can wait until Vince Cable gets his hands on the keys to Number 11. It is the perception which will matter and the new proposals can be sold very well, particularly the commitment that the tax burden will not increse. If the 50p higher rate is backed by conference that will be the only headline we get – our one opportunity each year to monopolise the headlines lost on an old policy. What a victory that would be for all concerned!

    PS: Gareth, it is precisely because I know you understand every crack in the worn streets of Charlbury that I used it as an example but to the best of my knowledge I don’t know of Charlbury returning a national government on its own.

  • I’m not pinning the blame for our less than sparkling performance on the 50p rate, I’m just saying it does not appear to have done us that much good.

    As to raising the upper tax band, this will affect the London elite which defines the debate – whether we like it or not – in a far more obvious way than our other policies so it has the potential to be a good vote winner for us.

    It doesn’t matter that other policies have a greater impact, it is the perception of what we are doing which will matter and income tax remains central to how people think about what they pay.

  • Joe Otten wrote: “Perhaps supporters of the 50% rate can explain why they would stop at 50%; or if they wouldn’t, what rate they think would be right for high earners and why. I would need to hear a convincing answer to this to credit a 50%er with understanding the issues.”

    Joe, simple answers to an important question. I would not go above 50% (levied on income above 100 or 150 thousand). This is largely because we would be entering territory where there are no good international comparators. In economies that have many similarities with our own higher rates on earned and unearned income are indisputably consistent with what I judge to be good economic performance. Sweden, Denmark and Finland combine higher tax rates with enterprise that is successful and internationally competitive. The idea that income differentials of the kind that we now have in the UK are necessary for strong economic performance simply does not stand up to scrutiny. The idea that they are is accepted far too easily. Indeed the UK appears to have caught an American disease and accepted uncritically the idea that it takes gross incomes of ten or more times those of the median to motivate and retain able and committed personnel.

    What would really lend credibility to the fairness message is taxing differentials that have precious little to do with performance/contribution judged by any reasonable standard and almost everything to do with the mutual admiration societies (known as remmuneration committees) set up to determine top salaries.

    Our taxation system has been fundamentally unfair for a very long time. It has grown increasingly unfair because of fiscal drag and the ballooning of tax reliefs. To Brown’s credit the tax expenditure welfare state has been scaled back but it remains very substantial – I know and I benefit from it like very large numbers of middle class Britons. I have no argument with a further assault on the tax expenditure welfare state but believe very strongly that our party’s commitment to the 50% rate has attracted far more votes than it has sacrificed. I accept that at top rate on income above 100-150 will be a relatively modest contributor to the resources needed to take large number of people out of tax altogether but believe that party’s commitment to the rate has helped us to fashion an identity that appeals large numbers of voters. What I would like, from those who want to ditch the 50% rate, is some convincing evidence that it has been or is likely to be a serious electoral liability. I acknowledge that differences in outlook may reflect whether most of your political experience has been gained in Labour or Tory held parliamentary seats.

    At the last election our real electoral liability (in my opinion) was Local Income Tax. LIT itself was not problem – our presentation of the policy was. A leader who did not understand and was therefore unable to explain it was a very serious liability.

    Whatever tax strategy we eventually settle upon the key to electoral success will be our ability to communicate our aims and the relationship between them and the taxation policies we have chosen. If we are to do that successfully we need the whole of the parliamentary party to understand the detail and be able to explain it clearly. The more difficult it becomes to explain the relationship between our goals and the means we have chosen the greater the risk that things will be botched as it they were in 2005.

  • Toby, there is far more polling evidence out there than that rather thin section of Anthony’s blog. All of it is supportive of the 50p policy, as the vast majority of people don’t think it excessive.

    Oxonian – on your point about ‘how much change can we take’, the Tax Commission decided early (and I’m glad that it did) that it would be radical and to eschew a smaller quantum of change.

    Meanwhile it’s very clear that while the media have never grasped the concept of taxing people out of tax altogether (something we found after the 1998 policy review), there is almost universal understanding that the 50p demonstrates our commitment to stop rampant inequalities of income.

    I don’t share the view that we were regarded at the last election as a high tax ‘for the sake of it’ party.

  • Bernard Salmon 15th Sep '06 - 10:53am

    Gareth, you say that “there is almost universal understanding that the 50p demonstrates our commitment to stop rampant inequalities of income.”
    Given that the proposals on CGT will target the very wealthy, is that not a message we can also get across with the new proposals?

  • Not that any of it matters – epolitix reports that it’s a referendum on the Campbell leadership according to Cable. 🙁

  • Evan,
    ‘Tax and spend’ is a bad image: Why do you think Labour has tried to distance itself from the charge? Why has it spun public spending as ‘investment’.

    I meet people who are naturally liberal will not vote LibDem because they see us as a socialist party who wish to tax them to death. People may say ‘oh I’d pay that’ but when it comes to reality or just thinking about things in more depth they don’t want to pay and they oppose it.

    This government have shown that taxing more and spending more doesn’t lead to better services. People are realising that. This is no longer the 60s, the NHS and education system are falling apart.

    The 50p issue is also damaging because if it were passed, it would make it look like the Liberal Democrats are a party of slogans but not substance. If we really want to increase our share of the vote we need to look like a serious party, not one of simply simple slogans.

  • willhowells:
    The 50p tax rate may be revenue neutral, but people don’t realise that.

    As said above it is claimed that:
    “there is almost universal understanding that the 50p demonstrates our commitment to stop rampant inequalities of income”

    It is a symbol, that is why some don’t want it dropped. However it is a poor symbol as it signals to some that we want to take your money because you work hard.

  • Tristan, you have a lot of Tory friends from the sound of it 🙂

    The whole debate is being distracted onto a sideshow in a way that simply would not have happened had there been options on the table, or had the 50p been treated the same way as (say) LIT.

  • Could someone explain to me how the single rate of tax relief on pension contributions will work, because it isn’t even illustrated in the “detailed policy document”?

    I’m especially interested in its effect on those in final salary schemes.

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