Opinion: What message would scrapping the 50p rate send?

The rumour mill is turning at an alarming rate about next week’s budget- the grapevine is whispering that the 50p rate is about to be scrapped, and less than a week after Liberal Democrat spring Conference voted for this:

“Conference resolves that the wealthy and those with the very highest incomes should make the greatest proportionate contribution to the tax measures necessary for the reduction of the structural budget deficit and that the Additional Income Tax Rate of 50% on the top 1% of earners is needed to achieve this.”

Fairer taxes, one of our four key manifesto pledges supposedly delivered in the CSR, will mean nothing if Osbourne gets his way on this. If he wants to tinker further with the tax system, why doesn’t he try further raising the income tax threshold, taxing property and land more fairly, or preventing the wealthiest from avoiding tax by closing loopholes?

Of course we know very well why Osbourne won’t be suggesting these things behind closed doors; because the Conservative Party, unlike the Lib Dems, is beholden to vested interests. Poor George, his hands are tied by what he said to solicit donations for election two years ago.

The Lib Dems, on the other hand, are accountable only to our members and voters through real democratic levers. Our members made themselves pretty clear last weekend on the matter: and what do you think the 99% of people who don’t come anywhere near the astronomic £150,000 threshold have to say on the 50p tax rate? Oh wait, someone already asked them. The infamous SLF have released a statement on the matter, and I have to say they’ve got this one right in my opinion.

There are, as always, some practical counter arguments to such an abstract, principled position, if supported with adequate economic evidence. If the top rate were shown to reduce revenues, owing to some Laffer curve aberration, then it would be hard even for the extreme left to justify its retention. Similarly, if it were shown to have a negative impact on unemployment figures, as the business lobbyists were arguing on Radio Four this morning, because execs of medium sized enterprises choose to take extra holiday instead of chasing more revenue (with which to employ people,) then this too would be a reasonable objection.

But the case for these is patchy, and anecdotal at best so far. In the meantime, do we really want to be the party to let the Tories help their friends to the takings at a time of huge challenges in executive pay differentials, gender imbalanced boards, huge unemployment, and painful reductions in benefits and pensions?

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45 Comments

  • I am afraid that the voting public will conclude that the LibDems are going along with Conservative policies. Again. This may be (to some extent) unfair. But life and politics can be unfair.

  • I agree with you Joe, but the problem in shifting the status quo is that it might give the slippery Tories wriggle room to renege on any commitments if they aren’t carried out at exactly the same time as any change in the 50p rate.

    It is also very much about presentation. Unless there is a major headline “win” as far as the Lib Dems are concerned, it will matter little if any proposed measures are actually more redistributive than those that went before if they are not clearly seen as such. The Tuition Fees fiasco is concrete demonstration of this from the past. Unless the presentation is handled with a cast iron grip of someone who knows what they are doing in presentation terms, even the most egalitarian measures can be twisted against us, usually with the connivance of a hostile press.

  • David Evans 16th Mar '12 - 7:04pm

    How about, “Thanks for taking the blame for the NHS Bill guys. Now here’s one in the eye for you!”

  • David Evans 16th Mar '12 - 7:05pm

    P.S. Never give a sucker an even break!

  • Deficit reduction is the overriding task of the Coalition. Therefore any tax cut needs paying for through taxes elsewhere. We have plenty of policies on other (I would argue better) ways of taxing the rich, which I hope will be paying for scrapping the 50p rate (if it happens; I’m far from sure the Guardian have their facts right).

    So the question is what message are we sending out by swapping the 50p rate with a different tax on the rich? I would hope the message is that we’re a responsible party willing to negotiate in coalition to get through our policies.

    Let’s not leave it to others (i.e. our opponents) to define what the message is. Let’s spell it out ourselves!

  • Andrew Duffield 16th Mar '12 - 7:15pm

    “What message would scrapping the 50p rate send?”

    That our party understands the Laffer curve?

  • Alun Griffiths 16th Mar '12 - 7:44pm

    Andrew, do you understand the Laffer Curve?

  • Stuart Mitchell 16th Mar '12 - 8:00pm

    @Andrew – What evidence do you have that 50% is to the left of the peak of the UK’s income tax Laffer curve?

    To those appalled by these rumours, I say: relax. There is no way the government can cut the 50% top rate without achieving the £10,000 threshold first, since this would be in contravention of the coalition agreement (section 29). So it couldn’t possibly happen… could it?

  • Stuart Mitchell 16th Mar '12 - 8:03pm

    Sorry, should have said…

    @Andrew – What evidence do you have that 50% is to the RIGHT of the peak of the UK’s income tax Laffer curve?

  • Richard Dean 16th Mar '12 - 8:20pm

    Is this the right question to ask? Removing the 50p rate might look unfair, and might increase discontent in the workforce, leading to an unconcious reduction in productivity, perhaps confounding the Laffer academics. But it might be spun into something quite different: that it will motivate business leaders sufficientlythat they will lead us all out of the recession.

  • Foregone Conclusion 16th Mar '12 - 8:28pm

    What Jonathan Calder said. If the Budget abolishes the 50p tax rate but introduces new ways of taxing the wealthy (and specifically wealth) that take in more than the 50p rate, then I will be happy. If the 50p rate is preserved but there are no moves to a more redistributive tax system, then I will be unhappy. Deeds not words!

  • Jonathan: I agree with you about “sending a message”; the government isn’t there to be a glorified semaphore system – https://www.libdemvoice.org/?p=21136

  • Simon Shaw – quite. And based on my own experience I can’t even say my local party reps were elected, if indeed they were even there.

  • a) The actual top rate of tax is far higher than 50% anyway.
    b) Those making serious money skip around this with ease anyhow, so lets shift to taxes that are harder to dodge.
    c) Tory donors have to get their pound of flesh don’t they? The challenge for us is to get something meaningful for the 99%s – which we are doing.

  • Keith Browning 16th Mar '12 - 9:05pm

    If you give 10 people ,who already have millions of pounds, one million pound each, they are very unlikely to spend it, and will certainly save it, probably in a tax avoidance scheme or offshore, and so it is lost to the economy.

    If you give a million people £10 each they will almost certainly spend it and that £10million pounds will go round and round, perhaps four or five times before it gets back to the people who already have a million pounds.

    Give any tax cuts you can affod to the poor and everyone benefits but give them to the rich and almost no-one benefits, unless you own a bank on a small island in the West Indies.

  • Keith Browning – not necessarily; they might invest it, whereupon it generates growth and goes towards creating jobs and future tax revenues that pay for all the services and public sector workforce.

  • I keep reading that a cut in the top tax rate will help businesses and entrepeneurs.

    If we want to help businesses, cut business taxes. A cut in the 50p tax rate will benefit a lot of people who AREN’T entrepeneurs, such as the rich retired and those who have inherited their wealth. And it would be a slap in the face to those lower down the scale who are being clobbered by rising prices, soaring fuel costs and imminent cuts in tax credits.

    The politics of this are toxic.

  • And would the Tories really be so stupid as to reduce the tax rate to 40% for the relatively small number of ultra-high earners whilst leaving the still small but more numerous group of people earning £100-£115k still paying a marginal rate of 60%?

  • I agree with Joe Otten and with Jonathan Calder. Labour reintroduced the 50p tax rate in their last days in office as a temporary measure. And if it isn’t temporary, people will spend a lot more money to get around it.

    Personally I’d like some adjustment on taxing capital gains at the same time (and – of course –
    a big move on tax thresholds).

  • Tony Greaves 16th Mar '12 - 11:25pm

    The Laffer curve is a discredited load of rubbish.

    Tony Greaves

  • Simon Shaw writes: “I’m a member and I wasn’t asked my views on any matterlast weekend.”

    So, if you had been asked your views Simon, what would you have said about the budget proposals?

  • Looking at this from the opposite end of the tax scale – has our Government, specifically our Leadership, even considered for one moment re-introducing the 10% tax rate for people with an income of – say – £15,000 p.a. and lower? Gordon Brown was very quick to get rid of the 10% tax rate and tax everyone at the lower end of the income scale 20% but no-one has ever re-visited this as a possibility.

    In my view, it will encourage more younger people and people on lower incomes to work and feel that they are achieving something by working, instead of having every penny they earn snatched away and their net income reduced to below poverty levels.

    Whatever is done at the top level of Tax – whether it be 40% or 50% – there will always be those who employ a CA to find ways of squirreling away more of their money so that it cannot be found. Creative accounting is how many of the rich get richer and they will be looking for new ways of avoiding paying the 50% rate anyway.

    Just a thought ………………..

  • I assume the lib dems won’t be allowing Osborne to introduce regional pay deals for the public sector given the immense damage this will have on regional economies outside of the south?

  • Unfortunately Maria, the vast majority of wealth is no longer in property and most of the seriously rich don’t have masses of property in the UK. So those with few assets in property would not get hit, nor would those with a very expensive holiday home in Switzerland or Monaco; those with an ordinarily expensive one in the Lake District would. Also the impact on tenant farmers in the UK could be catastrophic if you include land in general without a complex LVT structure around it. Sadly the one thing you can guarantee George not being willing to do is set up something like that in his budget.

  • toryboysnevergrowup 17th Mar '12 - 11:34am

    I would hope someone (Clegg, Alexander??) would remind Osborne of what he said on the matter in the last budget

    “I’ve said before that now wouldn’t be the right time to remove it, when we’re asking others in our society on much lower incomes to make sacrifices.

    For we’re all in this together.

    But I think it’s sensible to see how much revenue it actually raises.”

    Perhaps someone could explain how George can have a clue about how much revenue the 50p rate has raised before the end of the tax year, before tax returns have been submitted, before many banks have paid their bonuses, and before understanding how much income has been deferred into future years as a result of the FSA remuneration code requirements.?

    Of course it isn’t sensible. The decision has been made soley on the basis of tribal politics rather than on the basis of evidence as was previously promised. And the reality is that the LibDems in government are allowing this to happen, and they need to rediscover their backbones. I could talk about the latest leak on cutting public sector pay in poorer regions as further evidence as to the real nature of the Tory agenda – but I suspect that would be too much for those who are taking their political stance from the worm on the Party’s symbol.

  • toryboysnevergrowup 17th Mar '12 - 11:43am

    Andrew Duffield

    Osborne didn’t have evidence as to where the peak was on the Laffer curve at the last budget.

    He cannot have got the evidence since.

    This is nothing to do with the Laffer curve – but just his Party’s predjudices regarding its shape.

  • The message would be that the Conservatives will proceed with their policies whatever the Liberal Democrats think. I.E no deal on a fair overhaul of the system re property / land etc.

    The Liberal Democrats appear to get very little for their support of radical ideological conservatives policies.

    It also sends a message from the Conservatives that they are a party of the rich and City finance. The poor and public service get pressure, scapegoating and punishment. The rich and the City get tax cuts, encouragement and soft peddling on their failings and mistakes in the financial crash.

  • Well I lpersonally am delighted about this. As a public sector who has had years of pay freezes, the prospect of greater pension contributions, reductions in the services i can offer and the pain of having family members made redundant i know the distress and misery of feeling the pinch. So i’ve never brought into the all in it together thing. As i said i’m delighted. Why should we all take the strain? I couldn’t be happier that at least some in society will suffer a little less and have an incentive to spend. No doubt it will all trickle down eventually. Thank you the Lib Dems for making this Tory dream a reality, you can be sure to rely on my vote at the nect election.

  • We shouldn’t fall into the trap set by Gordon Brown. The 50p rate should go only as part of a radical measure to cut taxes across the board. We can’t be seen to be favouring the rich. A significant cut in VAT would surely be preferable? I believe in low taxes because I think individuals generally know how to spend their money better than the government but if we are to become “Britain’s tax cutting party” we need to prioritise low and middle earners.

  • I suspect the reason the Tories are desperate to drop the 50p rate now is because it is actually raising significant revenue (estimates from Richard Murphy suggest 6 billion). It looks like the treasury may have skewed the data by making unrealistic projections about the number of high rate tax payers in 2010/11. The longer the rate is in force the more difficult it will be to massage the data and the more difficult the politics of dropping it become.

    http://www.taxresearch.org.uk/Blog/2012/03/16/could-the-treasury-be-falsifying-the-data-on-the-50p-tax-rate-it-certainly-looks-possible/

  • Number of days Labour were in power (1997-2010): 4,757. Number of days during that time when the top rate of tax was 50p: 35.

  • Paul Walter Paul Walter 17th Mar '12 - 8:14pm

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  • Jedibeeftrix

    I think punitive and ineffective goes a bit far! I am in favor of moving tax away from income to other, more appropriate things (land, unearned and unproductive wealth, inheritance).

    The indications are, however, that there will be nothing substantial to replace it though. We will wait until Wednesday

    If we are looking at tax remember the following:

    8000-40000 Tax rate 20% with 12% NI
    40000-150000 Tax rate 40% with 2% NI
    150000+ 50% tax with 2% NI

    So the tax rate goers from 32 to 40 to 52 – doesn’t seem that steep a progression

    As I said I am not an opponent of tax reform but it has to be fairly and carefully managed – I do not trust the Tories

  • Peter Bancroft 19th Mar '12 - 2:29am

    bazzasc,

    Not quite right. From £100,000 to £115,000 or so it’s ~60% + 2% because of the removal of the allowance and then goes down again.

  • Geoff Crocker 19th Mar '12 - 6:28pm

    So, if you earn £100K, it’s not going to look worthwhile taking a further £10K project for which you will work hard and only get paid £3,800 net. It can never be just or economically effective to take more than half of the value of someone’s work from them. As for property taxes, Lib Dems have long opposed them as unfair and have rightly campaigned for local income taxes to replace rates and Council tax. Are people to be taxed three times on the same activity – once as earned income, again on property bought with that income, and again finally as inheritance tax? Apart from these policy issues, the general invective against higher earning groups in society, and bogeyman ‘tycoons’ is not worthy of liberal politics.

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