James Forsyth

IFS: Past performance suggests that a 40p top rate would generate more revenue than a 45p one

IFS: Past performance suggests that a 40p top rate would generate more revenue than a 45p one
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The latest release from the Institute for Fiscal Studies is going to restart the whole 45p rate debate:

“If people respond as they did to the last set of changes to the highest income tax rates, in the late 1980s, then the new 45% band will actually reduce the Government’s revenue slightly, as the existing 40% income tax rate is the one that would generate most revenue.”

This confirms that the 45p rate is about politics not revenue. But it doesn’t change my view that the leadership is right not to engage on this issue. If the Tories announced that they would repeal a new 45p rate on those earning over £150,000 — or £100,000 for that matter — they would be where Labour need them to be if Labour are to cast them as a party of privilege, for the few not the many etc.

I know many people on the right will argue that there is no need to accept Labour’s terms of debate any more and that the party must show that it is on the side of the wealth creators. I understand that argument. But 45p is not the right fight to pick. Vocally opposing the rise in employers’ national insurance contributions would be a far better one. The electorate is far more likely to appreciate that increasing the tax on jobs at a time of rising unemployment is economically foolish than that raising taxes on the super rich would produce less revenue.

Written byJames Forsyth

James Forsyth is Political Editor of the Spectator. He is also a columnist in The Sun.

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