{"id":14382,"date":"2012-02-29T20:39:38","date_gmt":"2012-02-29T20:39:38","guid":{"rendered":"http:\/\/www.taxresearch.org.uk\/Blog\/?p=14382"},"modified":"2012-03-01T08:51:59","modified_gmt":"2012-03-01T08:51:59","slug":"the-50p-tax-rate-lets-shatter-the-myths-behind-the-telegraphs-letter","status":"publish","type":"post","link":"https:\/\/www.taxresearch.org.uk\/Blog\/2012\/02\/29\/the-50p-tax-rate-lets-shatter-the-myths-behind-the-telegraphs-letter\/","title":{"rendered":"The 50p tax rate – let’s shatter the myths behind the Telegraph’s letter"},"content":{"rendered":"

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\u00a0sources\u00a0it has to be\u00a0one\u00a0of the worst kept secrets in publishing history. This lot - whose funding is not known<\/a> - are behind it.<\/p>\n

So, let's deal with some facts and not the allegations and aspersions which those seeking to\u00a0abolish\u00a0this tax rate usually peddle.<\/p>\n

About 300,000 people will be affected by this tax <\/a>in HMRC's estimate. They have taxable income after allowances and\u00a0reliefs\u00a0of \u00a3150,000 a year. They represent about 1.0% of all taxpayers.<\/p>\n

They're expected to have total taxable income between them of about \u00a347 billion. So the tax -\u00a0which\u00a0is an extra 10% over and above the 40% rate\u00a0previously\u00a0applying should raise nearly \u00a35 billion a year. It may,\u00a0because\u00a0of the\u00a0disallowance\u00a0of\u00a0personal\u00a0allowances 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 \u00a36 billion in fact, but I stress that's an estimate.<\/p>\n

This is higher than HMRC have estimated - they've never gone above \u00a33 billion. It is very obviously radically different from the claims made by opponents that this tax will cost the\u00a0government\u00a0money. But let's be clear: to\u00a0achieve\u00a0that goal all these 42,000 people would have to voluntarily reduce their incomes to below \u00a3150,000, either by giving them up or finding massive avoidance\u00a0schemes\u00a0or all would have to leave the country.<\/p>\n

I can't see them giving up their incomes to save a relatively small amount in tax. So let's ignore that\u00a0possibility. They still have to pay the mortgage and the school fees after all.<\/p>\n

They may also tax plan - if so the case for a\u00a0general anti-avoidance principle and for abolishing the use of personal\u00a0service\u00a0companies or for\u00a0abolishing\u00a0most of the remaining allowances and\u00a0reliefs\u00a0this 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 \u00a35 billion a \u00a0year. I say it's \u00a313 billion by individuals, but either way, to avoid more than \u00a35 billion extra is pushing the limits of plausibility. They won't avoid this liability\u00a0because\u00a0they can't. And the claim that the income tax take in\u00a0January\u00a0went down\u00a0because\u00a0of the 50p tax rate is just absurd. That is an impossible extrapolation to make that has no basis in fact at all.<\/p>\n

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\u00a0obviously\u00a0is.<\/p>\n

In that case this tax can and will work, without a doubt and if it raises much less than I\u00a0predict\u00a0then action to tackle the avoidance is needed. So the first claim of this group, that this tax will not raise money is very\u00a0obviously\u00a0false.<\/p>\n

It's also untrue for the vast majority that they pay 50% of their tax in income - even\u00a0including\u00a0NIC. You have to have all your income from\u00a0employment\u00a0and earn more than about \u00a31 million for total tax including NIC to exceed 50%.\u00a0Very, 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.<\/p>\n

So what else is there to discuss? Well, when the\u00a0verbiage\u00a0is removed just one other thing,\u00a0which\u00a0is the claim that this tax will harm\u00a0entrepreneurial\u00a0activity\u00a0in the UK. This is a\u00a0ludicrous\u00a0claim. It so happens I've seen the press release that\u00a0accompanies\u00a0this 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\u00a0majority\u00a0of companies - and 25% and falling for larger ones. Most pay somewhat less. And as many have reported -\u00a0including\u00a0the E & Y Item Club<\/a> - \u00a0the UK\u00a0corporate\u00a0sector is now sitting on cash of about \u00a3100 billion which it has not invested in productive activity\u00a0because\u00a0it 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\u00a0either\u00a0awash with it or are being denied it by banks, but not by tax\u00a0authorities. So the 50p tax rate will have no impact at all on jobs.<\/p>\n

And as someone who has been an entrepreneur in my time - creating lots of jobs - I can tell you, tax never\u00a0put\u00a0someone\u00a0off being one. Ever. Warren\u00a0Buffett\u00a0is one of the many real\u00a0entrepreneurs\u00a0who happens to agree with me. It may have an impact on salaried employees of companies (but I doubt it) - but\u00a0entrepreneurs, not at all. That's because entrepreneurs are born, and because it's a fact that\u00a0entrepreneurs\u00a0who are really motivated by money either a) want capital gains or b) fail,\u00a0because\u00a0to be a really good\u00a0entrepreneur\u00a0you have to be passionate about\u00a0your\u00a0business, its products and its\u00a0customers\u00a0 come what may - and the last thing that worries you in that case is a\u00a0bit\u00a0of tax. I\u00a0respectfully\u00a0suggest as a result those making this noise aren't really very\u00a0entrepreneurial\u00a0at all.<\/p>\n

So the second argument they make does not hold.<\/p>\n

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.<\/p>\n

Is giving these people - the 1% - a good use of money? The answer is no:<\/p>\n

1) For reasons noted they will not create jobs with it: they'll pay themselves with it.<\/p>\n

2) If they pay\u00a0themselves\u00a0the evidence is they'll save it e.g. by buying second homes. We already have a glut\u00a0of\u00a0saving in the economy. What we need is spending. These people save\u00a0because\u00a0they're wealthy - that's how you get to be wealthy. They also save\u00a0because\u00a0they already have more than enough income. That's\u00a0because\u00a0they're in the 1%. By definition they have more than 99% in the economy.\u00a0\u00a0But the result is that giving these people provides\u00a0the exact opposite of what we need in the economy right now - which is people spending.<\/p>\n

3) If the tax is paid though\u00a0because\u00a0the 50p rate continues \u00a0then benefit will go to:<\/p>\n

- pensioners<\/p>\n

- those on benefits<\/p>\n

- those for whom jobs will be created<\/p>\n

- those who will not lose their jobs as a result of \u00a36 billion of additional cuts.<\/p>\n

All these people do spend and so keep the economy going, unlike those\u00a0earning\u00a0more\u00a0than \u00a3150,000 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.<\/p>\n

4) We reduce inequality in society by taxing - and all the evidence is that produces healthier, more\u00a0vibrant\u00a0and\u00a0dynamic\u00a0economies<\/a>. So we should tax.<\/p>\n

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:<\/p>\n

a) You want to\u00a0reward\u00a0greed;<\/p>\n

b) You want to make the economic situation worse, and cost the economy both jobs and\u00a0entrepreneurial\u00a0growth as a result\u00a0of removing the\u00a0stimulus\u00a0from the additional spending of the least well off;<\/p>\n

c) You believe in inequality.<\/p>\n

I guess that's what the authors are saying in that case.<\/p>\n

But count me out then. I'm sticking with a 50p tax rate, with fairness, and with growth.<\/p>\n","protected":false},"excerpt":{"rendered":"

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
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