Labour planning new 45p top rate of tax

The latest rumour is that Brown will pay for his VAT cut with a delayed 45% rate of tax for those on £175,000 and over. So off the radar has this move been that (unlike a VAT cut) it’s not even in HM Treasury’s ready reckoner. Enough is now know about tax economics at these salary levels to establish that raising the top rate results is a false god – the super-rich don’t hang around to be taxed. That’s why top tax levels have been falling worldwide to compete for the high earners. France has cut its top rate from 48% in 2003 to 40% now. So “tax the rich” is a useful political slogan, but is economically futile – as governments around the world know. As Boris Johnson said at the last Tory conference, we may not like the Masters of the Universe but there are plenty other parts of the universe they can move to.
 
This is why the top rate of income tax has been 40% ever since Nigel Lawson’s 1988 Budget: raising it doesn’t deliver the cash you’d think it would. But promising to raise it is a powerful tool to assuage the left. It would only be adopted by a desperate government.
 
Right now the top 1% pay for 23% of income tax collected. We rely on them staying here, earning loads, paying their fair share – and the fair shares of 22 other people (as Sam Seaborne would say. If it even looks like Brown intends to finance pre-election tax cuts by whacking the rich, they’ll be booking the removal vans even quicker. You can’t finance a splurge by taking a carving knife to the goose who lay the golden eggs.