The Folly of Raising Income Tax

Under this Conservative-led collation government everybody in the UK will be paying less in income tax. However, if Labour have a sniff of power in 2015 they have pledged to raise the top rate, known as the "additional rate", back to 50%. Barton Ward Canterbury City Councillor Steven Williams shares his thoughts.

I strongly believe nobody should have to give 50% of his or her income to any government, anywhere in the world. However, the Labour Party in Britain thinks differently. Shadow Chancellor Ed Balls and Labour leader Ed Miliband are becoming increasingly left-wing in their approach to business and the economy. They have made some grand claims about how much cash could be generated by increasing the top rate of tax.

A number of think tanks have already suggested such a rise would actually be much lower that the two Eds suggest. The Institute for Fiscal Studies said that restoring the 50p rate would raise a very small amount of money in terms of the overall budget - approximately £100million.

Top earners in modern society can move their assets and, indeed, themselves with much greater ease now than they ever could before. However, increasing the top rate of tax does not just risk see those domiciled here relocating - it also acts as a deterrent for the wealthy to choose to Britain as their home. Should some wealthy individuals leave and others be put off choosing Britain as their new home it is worth keeping in mind that there are many other losses to the Britain’s revenues than just the extra 5% that could be raised on incomes over £150,000.

The treasury, and indeed the population at large, would lose the rest of the individual’s income tax up to £150,000, their national insurance contributions, VAT on all their spending, fuel duty, stamp duty as well as their impact on local communities. Even the Scottish Nationalists have refused to guarantee that an independent Scotland would impose a 50p income tax rate for the highest earners. David Cameron was absolutely right when he described reinstating the 50p tax rate as anti-business, anti-growth and anti-enterprise

By contrast the Conservative-led government has reduced the income tax bill for everybody by increasing the threshold at which everyone starts to pay income tax - and reducing corporation tax has meant that Britain is now a very attractive place for multinational businesses to house their headquarters.

Britain has always been an attractive place to house a company’s HQ - now it is not just because of the language benefits (English being the main language for business), the time zone benefits (UK can trade and communicate with Asia and the Middle East in the morning, the Americas in the afternoon and Europe all day) and the relatively transparent and international legal system but also because it now also makes sense economically too.

I think it was JFK who stated that the “paradoxical truth” is that lower rates mean higher yields and as such reinstating the 50% rate would have negative consequences beyond the headline £100million it might raise. As has become common Labour Party practice, their policies are more concerned with making a popular policy not the right one.

Steven Antony Thomas Williams
Canterbury City Councillor for Barton Ward