Fraser Nelson Fraser Nelson

50p tax: the coalition’s most expensive policy

In my cover story for this week’s magazine, I say that the damage of the 50p tax, various bank levies and general banker-bashing is far greater than Osborne realises. Here are the top points I seek to make:
 
1. We may hate to admit it but the British tax base, and our chances of reducing the deficit, are heavily reliant on a handful of very rich people. The highest-paid 1 percent will generate 23 percent of income tax collected in the UK in the year before the 50p tax (see the table below). And spot the correlation between the top tax rate, and the burden shouldered by the richest and the poorest. Which are the most progressive – the figures on the right, or the figures on the left?



2.  As JFK said, the “paradox” is that higher rates mean less revenue.
This is basic economics, true long before Art Laffer tried to explain it by drawing a yield curve on a cocktail napkin. Even the IFS suggests the 50p tax will lose £800 million. But this study assumed the ultra-rich are no more mobile now than they were in 1988. Obviously, the real impact to Britain will be far higher.

3. The Taxpayers’ Alliance did the figures for us, and put the cost of the 50p tax at £4.5bn. This suggests the 50p tax is the single most expensive coalition policy. (Pupil premium: £2.5bn. Extra social care: £2bn. Regional Growth fund: £1.4bn. Green Investment Bank: £1bn). This is £4.5bn of extra tax that the not-so-rich will have to pay, or £4.5bn extra that we have to cut. To put this into perspective, the defence cuts will save £2.3bn. Isn’t it better to tax the rich in a way that actually raises money, and not degrade defence?

4.

Already a subscriber? Log in

Keep reading with a free trial

Subscribe and get your first month of online and app access for free. After that it’s just £1 a week.

There’s no commitment, you can cancel any time.

Or

Unlock more articles

REGISTER

Comments

Don't miss out

Join the conversation with other Spectator readers. Subscribe to leave a comment.

Already a subscriber? Log in