The 50p tax debate won't be settled this year — but it might be escalated
Peter Hoskin 10:26am
More evidence this morning that the government won't be dropping the 50p rate any time
soon, in the form of an interview with Danny Alexander. ‘This is not
the time to be looking to reduce the tax burden on the wealthy,’ he says to the Daily Telegraph's James Kirkup and Robert Winnett.
This is a line that other ministers have deployed recently, and not just Lib Dems. And it suggests that the coalition is confident that HMRC's forthcoming review of the rate will say that it does indeed raise revenue.
But the matter won't end there. The IFS recently said of the HMRC review that, ‘tax records for just one year after the introduction of the 50p rate are unlikely to provide a robust estimate of how much revenue the 50p rate will raise’. So people will still question this tax rate's efficacy, particularly as the IFS also reckon that it will raise less than the government is currently forecasting. By their account, it could conjure up ‘less than £1 billion in a year’ for the Exchequer, rather than the Treasury estimate of £2.7 billion.
So what's a government to do? The crucial point that the IFS made on the 50p rate — as I blogged at the time — is that it sits within a wider tax system, which means that policies around it can, obviously, make a difference to how much money it raises. If various loopholes are tightened around the rich, then the likelier it is that they'll have to pay the full whack. If those loopholes are loosened, well, the opposite.
Which is why the full exchange from the Alexander interview is worth noting:
Typical Lib Dem policy, yes — and also a potential way to bumph up 50p revenues. But if the goverment starts trundling down that path, closing off each and every means of escape for the wealthy, then expect an escalation in current emnities. As the IFS put it, even if 50p does raise good amounts of money, it still may not be the ‘least harmful’ way of doing so. The bigger questions about which tax systems are best for growth will fester and persist.‘He offers no such hope for anyone subjected to the 50p tax rate, however. Not only is the rate likely to stay in place (this is “not the time to be looking to reduce the tax burden on the wealthy”) but those on the highest wages are likely to find themselves subject to yet more scrutiny from HM Customs and Revenue as the Coalition turns the screw on evasion and avoidance.“People who dodge their taxes are morally equivalent to people who cheat the benefits system,” Mr Alexander declares.’
Previous
G Thames
February 11th, 2012 11:11am Report this commentWhilst George won't be able to abolish the rate, he could at least increase the threshold to £250k to alleviate most of its effects.
Banker friends of mine now commute to London while living in other EU capitals - costing the exchequer millions in lost tax (they'd happily pay 40%). None of this will be measured by HMRC's study, but I'll bet it outweighs any revenue raised by the new rate.
Gawain
February 11th, 2012 11:24am Report this commentWe have heard too much from our politicians recently. The more they fail to do anything the more the words flow. It almost seems as if they think that words are an alternative for real action or original thought. Danny Alexander is one of the worst. A Chief Secretary of the Treasury should be silently reducing the size of government, cutting costs and finding ways to increase revenue that help the economy. Instead we have this Liberal twerp who doesn't appear to know how to cut his own nails let alone anything else, who is signally failing to reduce our borrowing and keeps trotting out sub Marxist theories of taxation. If he is so keen on tax, why not increase VAT on internet shopping or raise a tax on immigrants landing at our airports or raise a tax on people taking appeals to the European Court of Human Rights ? Or, even better he could take a long holiday and give us all a rest from this nonsense.
Widmerpool
February 11th, 2012 11:37am Report this commentLooks like this will be another victim of the “English Disease” where envy takes over from economic reality.
Why cant the Govt produce some properly researched stats on the 50% tax and if it’s worth the candle.
They might also come clean with the figures on what the Non Dom Tax [so favoured by Vince Cable] has actually brought in against what it costs to collect; not to mention the foreign millionaires who have left the country [forget those who have not come here and may not because of the Mansion Tax]
Fergus Pickering
February 11th, 2012 11:45am Report this commentSo what you are saying, Mr Hoskin is that one of the engines of growth is the ability of the richer to fiddle their taxes. Or is that not what you are saying?
telemachus'
February 11th, 2012 11:46am Report this commentWhat about a different regime for bonuses-say 80% tax with a 1005 penalty to the Treasury for the paying organisation?
justathought
February 11th, 2012 12:26pm Report this commentContrast this with the Irish Finance Bill published yesterday which (s.14) provides;
That overseas employers assigning employees to work in Ireland will be exempt from Income Tax on 30% of their salary between 75,000-500,000 for contracts of between 1-5 years.
Bill Clinton also hosted a summit this week of top businesses to promote investment in Ireland. He said that there was "trillions, just in America, in American corporations..now is the time to invest in Ireland.."
Pete Hoskin
February 11th, 2012 12:43pm Report this commentFergus Pickering: No, I'm just making the point that this is a live issue — and one that isn't going to go away with any HMRC review or anything.
Fair enough if the government wants to close loopholes. Even fairer enough if they want to clamp down on illegal tax evasion, etc. But if they prioritise this sort of thing, and put it in the general context of squeezing money from the rich, then its bound to exacerbate certain tensions.
And the arguments that ensue will not be so much about individual revenues (not least because, as the IFS sorta said, no-one really knows anything on that front), but more about the overall tax system and its suitability for growth.
John Moss
February 11th, 2012 12:47pm Report this commentTotal tax on earnings above £150,000 is 57.8%. £48 received for £113.80 in total cost to the business including employer's NI. Tax between £40k and £150k is 49% and below £40k it is 40%.
Merging these two taxes and setting rates of 40%, 50% and 60% initially, but with a clear commitment to reduce each by 1%, 2% and 3% a year respectively for ten years, so we have a single flat rate tax of 30%, would send a really dynamic message to people that we are serious abut generating growth from lower taxes and that the UK is where people with high incomes are welcome.
BigAl
February 11th, 2012 12:51pm Report this commentThe government is responsible for the largest tax avoidance scheme going - demanding that fat cats get paid less and don't take their bonus. For anyone paying the highest income tax rate, the biggest beneficiary is the tax man NOT the person who earned it.
For all of those who complain and set up camps, get over the jealousy and spend the fat cats money like you have been doing quite happily for the past decade
It doesn't add up...
February 11th, 2012 12:55pm Report this commentI guess you haven't been looking at the evidence too closely. It's quite clear that income tax revenues have suffered, because we have stable numbers in employment, and stable to modestly rising incomes yet less tax revenue than last year.
It doesn't add up...
February 11th, 2012 12:56pm Report this commentTax will only be paid on deferred bonuses when they are paid out, not when they are awarded. Banker bonus payments in cash are well down. I'm sure bankers who need cash can borrow cheaply against their future bonus entitlement, with the prospect that when the 50% rate is cut it will more than finance the loan.
Widmerpool
February 11th, 2012 1:04pm Report this comment@justathought
Good for the Micks!
No wonder Sarko does not like them with low Corporation Tax and this!
Glad George helped bailing them out I don't feel the same way about Greece or other Euro Basket cases!
Heartless Curmudgeon
February 11th, 2012 1:20pm Report this commentOn this most balmy of days, talk of tax prompts me to reflect, with joy, on the millions of people happily paying their Carbon cum Windmill Scam Tax - to offset Global Warming of course.
TrevorsDen
February 11th, 2012 1:42pm Report this commentGiven the current deficit I for one am not bothered bout the 50% tax and I spit on people commuting from the EU to avoid it. Poor sad little dear bankers have to suffer a teensy weensy little bit - like the rest of us!
Tell your friends to piss of the the moon Mr Thames if the mood takes them and think themselves lucky they will never come across me on their commute.
Overall though I would like to see higher threshold and lower rates. The higher rate threshold should be increased as well.
But carping about it now is pointless since the dceficit is so large.
Fergus Pickering
February 11th, 2012 2:10pm Report this commentNoted, Mr Hoskin. Thank you for your time.
daniel maris
February 11th, 2012 2:33pm Report this commentThis government's economic incompetence seems to know no bounds. It's printing £600 billion to keep the economy afloat in the most inefficient possible way. It would be much better if that were given direct to
savers and consumers or used to promote employment.
Mudplugger
February 11th, 2012 4:10pm Report this commentTaxes on income will always be subject to avoidance if any individual threshold change is large enough to warrant the efort. Hence large steps of 10% lead to avoidance.
A flat-tax, attractive though it may be, has the same effect - toppling over the threshold costs too much.
The solution is an almost infinite number of 'thresholds', starting at 1% tax on low incomes and rising, by 1% increments, to whatever maximum is politically feasible, say 60% or more. The trick is in setting the earnings levels, not the percentage.
That way, each step change does not warrant the cost/effort of avoidance.
Administration of such mini-thresholds is now simple with computer systems, so we need not be constrained by the old manual ways.
Widmerpool
February 11th, 2012 4:16pm Report this comment@ Daniel Maris
Slightly off topic IMHO? QE is not the same as Taxation Policy?
Further off topic; I am still waiting to hear from you which institution you allege Hester was sacked from for paying bonuses of £45m?
2trueblue
February 11th, 2012 4:28pm Report this commentdaniel maris, a very valid point, just too logical for politicians to get.
MilkSnatcher
February 11th, 2012 4:45pm Report this commentD Alexander will ensure Britain will turn into a sh*t place to live with an envy culture enforced by jackbooted tax inspectors. Good luck dividing up what's left of the smoking pile of ash called the economy. You can effing keep it.
john
February 11th, 2012 4:47pm Report this commentIn the short term people have been giving the Conservatives the benefit of the doubt whilst they see what they do, after suffering 13 years of socialist devastation. Time is running out and the exodus will commence in droves.
tom jones
February 11th, 2012 5:27pm Report this commentDisgusted to read the last bit. Basically what you're saying is "Better not try and get the correct amount of money owed to the country by the rich. Wouldn't want to anger them." Nobody in their right mind would think twice about cracking down on benefit cheats/self-employed people who fiddle their taxes so why is it one rule for the rich and another for everyone else? I find avoidance and evasion indefensiable and I'm stunned as to why others don't. Conceding this area of policy to the left is a big mistake.
Slim Jim
February 11th, 2012 5:53pm Report this commentWe won't get anywhere without economic growth. We won't get sufficient growth with current tax rates. Never mind the rich, we ALL need our thresholds raised (wasn't that mentioned in a manifesto commitment?) so that we can keep more of our own money. Unfortunately we have the dead weight of the public sector to maintain (PFI etc.), run by the lightweights of our political class. My God, we're all doomed.
Ostrich (occasionally)
February 11th, 2012 6:30pm Report this comment@john 11th, 4:47pm
"the exodus will commence in droves."
Where to?
Herbert Thornton
February 11th, 2012 8:15pm Report this commentOstrich (Occ) 11 Feb 2012 -
Not many places left. But even by today's depraved standards, Russia, seems to be proving slightly better than most so long as you're willing to learn Russian. Not the easiest of languages for English speakers, but a lot easier than Chinese.
Danielle
February 12th, 2012 2:45pm Report this commentTime has come to start taxing property. This is where the real wealth is and the boom in property values over the last decade is ripe for taxation. Most other countries have property taxes and the beauty is they are almost unavoidable unlike income tax because if they are not paid the state can seize the property easily. They are also fair because property in this country is hugely undertaxed.
Kingstonian
February 12th, 2012 9:29pm Report this commentDamielle
Did you give more than a nanosecond's thought to you property tax proposal? Imagine your grannie in her £700k family house in SW London, bought and paid for by her and her late husband's 40 years of effort, presented with a bill for £7k property tax when her only income is her state pension and a few measly benefits. But its OK because, in your words, "the state can seize the property easily".
Property in this country is not hugely undertaxed, it is largely paid for out of taxed income. Your idea of fairness is for someone who has worked hard and bought a property to live in in retirement should have that property seized by the state. At the same time, people who have not had the foresight to provide for themselves in old age are well provided for by the state(presumably partly by selling off those seized properties).
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