Sunday 17 October 2010

On the politics of the top rate - and taking a minority view

Unlike most people in Britain, I am not in favour of the top rate of income tax being increased from 50p to 60p on earnings over £150,000.

The ComRes/Independent on Sunday poll today shows that this is a minority view.

The top rate of income tax at 50p in the pound on earnings over £150,000 a year should be raised to 60p in the pound

Agree 54%

Disagree 29%

I disagree, because I think 50p is the right level for the top rate.

Despite taking a minority view on a 60p rate, I do think its right to have a higher tax rate in the top 1-2% than on earners 15% from the top earning £40k. So I was, at least, on the popular side of the argument when Alastair Darling decided that circumstances - a decision supported by 57% and opposed by 22% in a snap Times/Populus poll, and with YouGov funding support at 68% and opposition at 20% just afterwards, despite all of the headlines claiming the Chancellor had departed from the centre-ground with only large majorities of the public for company, as the tax myths of the imaginary centre all got a noisy airing.

The government rightly points out that those earning £40k+ are in the top 15% of earners in the income distribution (though it seems to have done too little work on the distributional impact of child benefit changes on single and double-income households to answer simple factual questions about it).

It is anticipated that George Osborne will want to propose to reverse the current 50p rate at the end of the Parliament, either in his final budget or to promise to do so in his next election manifesto alongside a package of measures aimed at different electoral segments.

He has surely made reversing the current 50p rate harder for himself.

The government has spent the last fortnight telling the media and voters that those paying the top rate of tax on £42k are (relatively) better off than they think (or feel). It is surely going to be harder for them to ever prioritise the reversal of a tax change which sees the top 1% of earners at £150K+ contribute just a little bit more.


Personally, I do think it would be worth investigating beginning the 50p rate 1% further down the income distribution (at £100k) is worth looking at, particularly if this can explicitly be done to protect middle to upper income households on 30-60k from taking a larger hit from deficit reduction.

Still, I predict 50p at £100k is likely to prove a soft shoe shuffle one step centre-leftwards too far for Ed Miliband and Alan Johnson.

But they might note with interest that broad majorities do not think the top 1% to 2% are paying their fair share. In particular, I think this reflects a widespread public perception that none of the "never again" sackcloth and ashes pledges from the banks after 2008 led to any noticeable change.

This will fizz up again with bonus rounds before Christmas and in the Spring. That is why tripling the bank bonus levy (which is 0.04% in the UK and 0.15% in the US) would strike the majority of the public as an eminently reasonable and moderate proposal, and why many of its own supporters - not only on the LibDem benches - think the government has set the level much lower than it could have done so.


The yield of the 50p rate is not enormous - the Treasury calculated its 2009 changes at the top to be worth £2.4 billion a year.

Noisy claims that the 50p rate makes nothing or loses revenue appear implausible (and are clearly not shared by George Osborne). That would, however, be a more plausible risk about a 60p rate - the IFS previously estimated that an overall marginal rate of 56% would maximise revenues from high earners in the UK.

50p at £100k would bring in a larger number of high earners 2% from the top of the income distribution, who would be rather less likely to have options to realistically consider exiting the UK tax system than those earning £250k-£500k+.

However, the FT has reported that the much hyped exodus to Zurich had not occurred and was much overdone. Relatively few other newspapers seem to have bothered to report the actuality, having all carried the megaphone 'warnings' from those who then decided to stick around.

Compare 'Banking exodus fears over 50% tax overdone' (£), FT 17.5.10, with 'Accountants warn of 50p tax exodus' FT 19.9.09 and 'Tax rise may spark entrepreneurial exodus' FT 5.12.09, and the similar stories carried in every newspaper.

The latter FT reported a survey finding that a significant reason for the non-exodus of top executives was that they could typically earn twice as much after tax in the UK than they could in Switzerland, such was the relative size of the UK's financial market.

Of course, this blog would much rather live in Britain than Switzerland, and it would seem to rather miss the point of being super-rich to think that having oodles of cash should somehow change your mind about that.

1 comment:

MatGB said...

What makes you think you'r ein the minority? A ComRes/IoS push poll with a leading question that adds no further qualifiers or information?

"Do you want to reduce the tax take from higher earners by encouraging greater tax avoidance and pay cuts by increasing the top rate of tax?"

That's an off the cuff reword that needs work, but even that'd get markedly different results. The ComRes/IoS polls with those questions have been broadly leading questions ever since they started.

Which is a shame, because if they got the questions right, we could get some good data out of them.