David Ruffley MP writes about a new campaign to scrap the 50p tax band.
The 50p rate proves “we’re all in this together”. Or so leading modernisers will have you believe. But they’re wrong, as five hundred entrepreneurs reminded us in a letter in today’s The Daily Telegraph. They urge George Osborne to abolish the 50p top rate of income tax in this month’s Budget.
Waiting until 2014 or 2015 to scrap it is risky. If the Chancellor leaves it that late, the 50p rate will have done still more damage to the economy. It could also become a political football at the General Election. Much better to get it out of the way now.
It is true that some opinion polls last year showed that the 50p tax rate had public support. But would the public be quite so supportive if they were reminded that without the drive and energy of successful entrepreneurs, jobs and growth decline?
Labour introduced the 50p rate in 2010, largely for class war reasons in their desperate search for votes. George Osborne, boxed in, judged that he could not be seen to cut tax for “the rich” given that his priority was to build support for reducing the biggest deficit in British peacetime history.
But he must now listen to the 500 entrepreneurs against 50p as he constructs this month’s Budget. Whilst this most political of Chancellors will be concerned about “the optics” of cutting tax at a time of national austerity, he has already laid the ground for scrapping the 50p tax rate.
He has said it must be a temporary measure and it must not harm the UK’s international tax competitiveness. With a top marginal income tax rate of 17% in Hong Kong and 20% in Singapore, our 50% marginal rate does not look very competitive.
The Chancellor has also said it can only be justified if it raises tax yield for the Exchequer. By the time of the March Budget HMRC will have done a review on whether the 50p rate does, in fact, raise any money. But the early evidence is not encouraging for the soak-the-rich brigade. Press reports suggest that HMRC believes it raises “hundreds of millions of pounds”. This is chicken-feed when annual Government spending is just under £700 billion and borrowing is forecast to be £120 billion this year.
Unsurprisingly, Labour put the revenue raised much higher, at over £1.5 billion. You can get to this figure if you assume that the 300,000 paying 50p this year do not change their behaviour. But, of course, in the real world, they do change their behaviour when faced with high marginal tax rates.
They convert income to capital. They choose not to work harder or to leave the country. And entrepreneurs who might want to come to the UK are deterred and go to more welcoming tax jurisdictions instead. HMRC have already released figures showing that the tax take from people who do self-assessment fell by half a billion pounds in the twelve months to January 2012. And whilst corporation tax was up 9.3%, income tax payments increased by a surprisingly low 2.4%.
I would contend that even if the HMRC review shows a modest rise in tax revenue from the 50p rate, it should still be scrapped.
Firstly, whatever figure HMRC produces it will be backward-looking. It cannot conceivably capture the future long-term negative effects of a 50p rate. If you punitively tax hard work, aspiration and wealth creation you’ll get less of all three. It sends the message that UK plc is no longer open for business.
Secondly, the HMRC review is unlikely to capture the likely fall in charitable giving that a continuation of the 50p tax rate implies.
If indeed there is any tax hole created by scrapping 50p, this can be filled by closing the stamp duty loophole by which owners of multi-million pound homes transfer them offshore. For a Chancellor keen on “the optics” of his tax measures, clamping down on stamp duty sharp practice in order to cut the 50p rate should be a very attractive option.
One of the Telegraph 500 signatories happens to be a Suffolk constituent of mine. He has said bluntly: “I am simply trying to create wealth for me, my kids and my loyal staff. Why are high earners treated like they have committed a crime and should be punished?”
For him, as for so many entrepreneurs, maintaining the 50p rate is a victory for those who oppose enterprise and resent success. The sooner this penal rate goes, the better.