Fraser Nelson Fraser Nelson

A 45p tax rate is not what’s best for this country

It has taken five months but George Osborne has finally fallen into the trap Gordon Brown set for him when he proposed a new 45p tax on the richest. Without prompting on The Today programme this morning, Osborne said:

“If you look at the proposal to increase the top rate of tax for people earning £180,000, a new 45% rate, I’ve said that’s going to be difficult to avoid and I think that is just a statement of the truth.”

Difficult to avoid if you have no imagination. It’s not a statement of truth, but a depressing snapshot into the Tory thought process. “If we do x, Gordon Brown will say y, so we should do z instead.” In this case, they thought “If we oppose the 45p tax Brown will say ‘few not the many’ so we’ll not fall into his trap, in fact we’ll really fox him and back his 45p tax! What’s more, we’ll hint that we’ll tax the rich as well!”

What about asking “What is good for the country?” What about the economic case for it – is it so compelling that the 45p tax is “difficult to avoid”?  I’m not against any tax rises: I consider them grimly inevitable. But even the IFS says that the 45p tax would not raise any revenue. Why? As the IFS said at the time: “People will contribute more to their private pensions. Convert more income into capital gains. Emigrate. Work less.” Basic reasons of dynamic tax modeling. There is a reason why the top rate of tax has been falling around the globe: governments get more revenues that way. Even Brown realised this. He kept to the 40p upper limit precisely because of his hunger for tax revenues.

The 45p would give Britain one of the highest marginal rates in the developed world – and what message would that send out about the intentions of the new Tory government? Brown only proposed it as a ploy.

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