The Telegraph is going to publish a latter tonight calling for the abolition of the 50p tax rate. I've now heard about it from so many sources it has to be one of the worst kept secrets in publishing history. This lot - whose funding is not known - are behind it.
So, let's deal with some facts and not the allegations and aspersions which those seeking to abolish this tax rate usually peddle.
About 300,000 people will be affected by this tax in HMRC's estimate. They have taxable income after allowances and reliefs of £150,000 a year. They represent about 1.0% of all taxpayers.
They're expected to have total taxable income between them of about £47 billion. So the tax - which is an extra 10% over and above the 40% rate previously applying should raise nearly £5 billion a year. It may, because of the disallowance of personal allowances and pension contributions for this group for which we have no real impact data as yet, be higher than that in my opinion - closer to £6 billion in fact, but I stress that's an estimate.
This is higher than HMRC have estimated - they've never gone above £3 billion. It is very obviously radically different from the claims made by opponents that this tax will cost the government money. But let's be clear: to achieve that goal all these 42,000 people would have to voluntarily reduce their incomes to below £150,000, either by giving them up or finding massive avoidance schemes or all would have to leave the country.
I can't see them giving up their incomes to save a relatively small amount in tax. So let's ignore that possibility. They still have to pay the mortgage and the school fees after all.
They may also tax plan - if so the case for a general anti-avoidance principle and for abolishing the use of personal service companies or for abolishing most of the remaining allowances and reliefs this group enjoy increases considerably. It would be unacceptable that this sum be added to the tax gap. But remember - HMRC say total tax avoidance in the UK is only £5 billion a year. I say it's £13 billion by individuals, but either way, to avoid more than £5 billion extra is pushing the limits of plausibility. They won't avoid this liability because they can't. And the claim that the income tax take in January went down because of the 50p tax rate is just absurd. That is an impossible extrapolation to make that has no basis in fact at all.
Nor they will all leave. Candidly - they've all said that time after time after time and there's never been any evidence that more than a few people go. There's good reason for that; their businesses are here for a start! So are their families. So let's just treat this as the threat to throw toys out of the pram that it so obviously is.
In that case this tax can and will work, without a doubt and if it raises much less than I predict then action to tackle the avoidance is needed. So the first claim of this group, that this tax will not raise money is very obviously false.
It's also untrue for the vast majority that they pay 50% of their tax in income - even including NIC. You have to have all your income from employment and earn more than about £1 million for total tax including NIC to exceed 50%. Very, very few are in that situation. Most who are are bankers, FTSE 100 directors or footballers. Let's not cry too many tears. So the claim that these people are taxed at well above that is also completely untrue.
So what else is there to discuss? Well, when the verbiage is removed just one other thing, which is the claim that this tax will harm entrepreneurial activity in the UK. This is a ludicrous claim. It so happens I've seen the press release that accompanies this letter. As a result I know that every single business person supporting the cut runs their 'entrepreneurial' activity through a limited company. Corporation tax rates in the UK are 20% for the bast majority of companies - and 25% and falling for larger ones. Most pay somewhat less. And as many have reported - including the E & Y Item Club - the UK corporate sector is now sitting on cash of about £100 billion which it has not invested in productive activity because it can't think what to do with it. That's how good our entrepreneurs are! Those who can't get hold of that money are the SMEs the banks won't lend to. But whatever the situation, what is clear is that this tax rate will not in any way change the availability of capital to UK businesses - which are either awash with it or are being denied it by banks, but not by tax authorities. So the 50p tax rate will have no impact at all on jobs.
And as someone who has been an entrepreneur in my time - creating lots of jobs - I can tell you, tax never put someone off being one. Ever. Warren Buffett is one of the many real entrepreneurs who happens to agree with me. It may have an impact on salaried employees of companies (but I doubt it) - but entrepreneurs, not at all. That's because entrepreneurs are born, and because it's a fact that entrepreneurs who are really motivated by money either a) want capital gains or b) fail, because to be a really good entrepreneur you have to be passionate about your business, its products and its customers come what may - and the last thing that worries you in that case is a bit of tax. I respectfully suggest as a result those making this noise aren't really very entrepreneurial at all.
So the second argument they make does not hold.
So let's come to their true, unspoken, agenda. They're greedy. They want this money. We have to consider that case too, even if it is not spoken.
Is giving these people - the 1% - a good use of money? The answer is no:
1) For reasons noted they will not create jobs with it: they'll pay themselves with it.
2) If they pay themselves the evidence is they'll save it e.g. by buying second homes. We already have a glut of saving in the economy. What we need is spending. These people save because they're wealthy - that's how you get to be wealthy. They also save because they already have more than enough income. That's because they're in the 1%. By definition they have more than 99% in the economy. But the result is that giving these people provides the exact opposite of what we need in the economy right now - which is people spending.
3) If the tax is paid though because the 50p rate continues then benefit will go to:
- pensioners
- those on benefits
- those for whom jobs will be created
- those who will not lose their jobs as a result of £6 billion of additional cuts.
All these people do spend and so keep the economy going, unlike those earning more than £150,000 who just save. So we get growth by giving these low paid people money; we don't get it by giving tghe same money to the well off.
4) We reduce inequality in society by taxing - and all the evidence is that produces healthier, more vibrant and dynamic economies. So we should tax.
So I've considered all the evidence and what we come down to is the fact that there is no argument for cutting this tax unless:
a) You want to reward greed;
b) You want to make the economic situation worse, and cost the economy both jobs and entrepreneurial growth as a result of removing the stimulus from the additional spending of the least well off;
c) You believe in inequality.
I guess that's what the authors are saying in that case.
But count me out then. I'm sticking with a 50p tax rate, with fairness, and with growth.
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Those subject to the 50p tax rate are obviously the creme de la creme. They will no doubt have been able to demand extra salary to cover the extra tax, because they are indispensable. And that has meant … even more tax paid to the treasury.
I will give you the benefit of the doubt and suggest you have accidentally misread your referenced source data. It’s not 42,000 people affected it is 308,000
You are right 0- I have read the last line before the total, not the total itself
to be fair its not the easiest table to read !
would be interesting to know how many of the 300k are bankers.
Of employees it could exceed one third
Richard,
BBC are misreporting this – badly. They describe the letter as being from the owners of 537 small and medium-sized businesses.
One of the signatories is a representative of Scottish and Southern Energy – employs 20000+ staff, and had revenues last year of £28 billion!
Under no definition I know can they be called an SME. I’m pretty certain that there are more.
I suspect many of these are not the owners
And if they are their profits are subject to just 20% tax
Typical BBC
I will be on at 12.50, BBC2
I’m interested why you continuously refer to those having incomes over 150K as having been “given” this money. Who gave them this money? Surely they earned it!
I’m also intrigued why you resent saving so much – are you encouraging people not to save?
Seems you want everybody to have the same amount of disposable income irrespective of how much they earn.
I do not for a moment dispute those earning over £150k will in many cases earn what they are paid
Equally, I would strongly suggest many are heavily overpaid
And as for saving – I make the simple point that right now we have a glut of it and a shortage of economic activity as a result. That’s a fact. We need investment and savings are not the same as investments – in fact they’re very, very different
depends (as so much in life does) on your defiition of “overpaid”.
If you put a substantial amount of your own capital at risk in order to earn £150, £200 even £500k would you consider that “overpaid” given the risk you are taking on personally?
Im thinking here of the many professional services firms who are organised as LLP’s (rather than corporates) and whos partners will make up a reasonable proportion of the 300,000 people
you may say that their capital isnt really at risk as their firms are too big to fail – but tell that to the Andersen partners !
If you are an employee banker with no personal capital at risk then what is the justification for a reward package of £500k, £1m, £1m………..gets slightly more tricky to make a defence in my opinion.
Can you explain what you mean when you say: “We need investment and savings are not the same as investments — in fact they’re very, very different”, and how this fits in with your argument regarding a need for spending over saving?
Thanks
Putting money in a savings account does not mean it is then lent to someone to create new productive capacity in the economy. There is no link.
So savings does not equal investment, ever. At least in reality. It does in some right wing text books but those people have never gone out to look at the real world.
Saving which does not result in investemnt withdraws money form productive use in the economy so we have a downward trend in national income.
To reverse that we need more spending or investment – which means we need to redistribute from savers (by definition the well off) to spenders (be definition those in need) and more investment (and since the private sector has £100bn in cash and will not invest that has to be gov’t right now)
That’s it, in a nutshell
Thanks!
In response to Richard Murphy’s comments on the “500 entrepreneurs against 50p” letter, the Scrap The Tax campaign made the following points:-
– Richard Murphy gives no support for his claim that the money raised will be more than the Government estimated. The Labour government even cut its estimate of the amount to be raised, once it realised that people would change their behaviour. We all know that predicting tax take is difficult. Plucking figures out of the air really won’t do.
– He also ignores the knock-on effects. If you trim your income a bit because the tax rate makes leisure time more worthwhile than extra work, your spending goes down – you pay less VAT. And you don’t have the spare money to invest in your business, so you don’t create more jobs, so other people don’t get to pay income tax or VAT.
– And he ignores the economic evidence. The Institute for Fiscal Studies found that the tax-maximising income tax rate was around 40 per cent, not 50 per cent. They weren’t playing politics, they were using economic data and formulae.
– Murphy says there wouldn’t be enough avoidance opportunities. The revenue loss doesn’t have to be solely through avoidance. You lose some through less work, some through high earners from abroad not coming to the UK for a few years, some through avoidance, and pretty soon you’ve lost the lot.
– The overseas problem is not just people leaving the UK. It is high earners from abroad who won’t want to spend a few years in the UK, so we won’t get to tax their income and their spending.
– The reason some companies (not all) have plenty of cash is concern about economic prospects in the near future. Confidence needs to be restored. And plenty of small companies don’t have cash – hence the fuss about bank lending. You cannot say this is just between the business and the banks, and ignore the tax position of the owner of the business. If owners could keep more of their income, they would draw less income from their companies and leave more as capital to be invested in their businesses.
Respectfully, none of these make sense
Let’s start with the tax take – I simply used HMRC data, which you must have just ignored
You also make the absurd assumption that all on higher tax rates decide their leisur time based on the tax rate. First that’s not true – this assumes they know their income and second they have that choice
Third – I have shown that sum can’t be avoided
Please live in the real world
Scrapthetax makes valid points about a higher tax rate disincentivising foreign and home grown talent from working in the UK that you do not address. The City is responsible for a large chunk of the UK’s GDP and has traditionally attracted the creme de la creme of employees from around the world, keeping one of this country’s biggest exports, its financial services, at the forefront lof the British economy. Without the top people working in our country in this sector, less productivity and less success for big businesses will lose a lot more money than the £5bn that you naively claimed, on national television, the 50p tax will create.
You present little valid defence of the additional rate in your article, ignoring sound economics in what I believe is an attempt to raise your public profile and that of your website. I would think that a person who has had your level of success in business and is a chartered accountant would have a more rounded view of the subject, but your responses on here are crass and childlike. If this article is your genuine view then I suggest you discuss this matter with your peers, as I am sure the majority of them will not agree with the veiws you have presented today.
I have taken the data – the only data – available on this issue, which has been published by HMRC but ignored in all analysis, and used it to reach a conclusion. Of course HMRC may be wrong – but candidly, if they are it is because there is massive tax avoidance going on, and that will be another issue
It is not possible for this tax nto to raise substantial sums. To avoid it all those 300,000 people earning more than £150,000 would have to cut their income over that amount by 1/4 on average. Why would they do that? Your reasoning makes no sense
but then nor does much else you say. Why on earth should I reduce this tax so I can encourage more wasteful activity in the City of London which I propose to tax until feral finance is eliminated from our economy by introducing a genuine Tobin Tax? Maybe you didn’t notice the most destructive industry ever in our history is finance. Some of us did.
I suggest you take your eye3s off the blackboard and look at the real world.
As for my peers – you mean I should conform to the norm? What a silly idea! As George Bernard Shaw said “The reasonable man adapts himself to the world: the unreasonable one persists in trying to adapt the world to himself. Therefore all progress depends on the unreasonable man” (Maxims for Revolutionists). Peer review is intended to perpetuate the reasonable man. I have no intention of acquiescing.
I think the £150,000 starting rate is a problem. It catches many more ordinary Joes than you think. For one example it would catch many in IT who have a good year, but then have poor years.Rates at the margin limits are also higher than 50%. And Entrepeneurs pay higher rate tax from their companies, when they draw dividends exceeding their basic rate bands.
So Let’s go for £250,000
You have looked at the data from HMRC but taken a very simplistic view and failed to apply any analysis to this. Data comes in forms other than figures, peoples opinions and actions need to be applied to any numbers from HMRC that have been crudely manipulated. People do find tax avoidance schemes, they always have and probably always will and that does need to be clamped down on. 500 business leaders are not wrong.
We have the second highest rate of income tax of our major trading partners, after the netherlands, and these countries have some of the most advanced economies in the world. History has shown, as does the Laffer curver, that higher tax above the equilibrium rate will not produce more tax, and no matter how ‘fair’ it seems to take from the rich and give to the poor, it is more effective to have a lower rate of tax that people will pay. In a world where people with wealth have increasing internationl mobility, we do not want to drive them from this country, but keep them here that we can realise as much from them as is economically viable.
A Tobin tax, if applied evenly as was proposed by the EU that the UK has refused to enter into, is probably a good way to smooth the boom and bust that capitalism and international markets inevitably produce, as is greater regulation of the banks. These are reasonable measures to ensure that the economy can remain as stable as possible, whilst restricting the volatile actions of some traders.
Fair enough, challenge the norms, but with evidence that has substance, not by pandering to those who are looking for scapegoats and providing simplistic political arguments like
benefit will go to:
– pensioners
– those on benefits
– those for whom jobs will be created
– those who will not lose their jobs as a result of £6 billion of additional cuts.
We would all prefer pensioners to be better off and more jobs created, but the 50p tax rate is not the way to go about making this happen.
I publish more evidence on Monday
But let me be honest – you wouldn’t recognise it whatever it was