By Tim Montgomerie
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I've dithered for a few days but I think George Osborne has got it right on 50p for three main reasons:
- While 50p is not the biggest barrier to growth it has achieved totemic status. Abolishing it sends an important signal about the Coalition's pro-business intentions. It might also mean certain 50p obsessives start talking about the economic reforms that are more important to Britain's economy.
- As Janan Ganesh argues over at The Economist this is the best possible moment for an economically harmful tax to be abolished – otherwise we're getting too close to the election. There may be some outrage now but if resources allow any future tax adjustments can and must be 100% focused on the striving classes. It already seems like Labour is caving on the issue – the two Eds know that what little is left of their party's pro-business reputation will be killed dead if they promise to reintroduce one of the highest income tax rates in the world.
- Thirdly, George Osborne is introducing a wealth tax that, unlike 50p, will actually raise money and won't seriously discourage job and wealth creation. Many very sound individuals are getting very worked up about the proposed 7% stamp duty on £2 million homes. Allister Heath of City AM calls it "shockingly high", "quite unjustifiable" and "class war". I really disagree. Unlike the Lib Dem idea for a mansion tax, higher stamp duty is a mansion sales tax – a tax not on a stock of wealth but a tax on a transaction (a flow). Taxing London's inflated property market is one of the most sensible and justifiable taxes I can imagine. With more and more people avoiding income taxes, taxing property is likely to produce more reliable revenue.
The Lib Dems are, of course, claiming credit for a Robin Hood budget and it is indeed a Robin Hood budget. We don't yet know what George Osborne is going to do on petrol duty but the basic effect of this Budget will be to fund tax cuts for millions by taxing millionaires. George Osborne is very relaxed at all Lib Dem claims to own this policy. He believes that voters will remember who announces the tax cuts and that will, of course, be him today. Not Clegg. Not Alexander. Not Cable. I hope he's right and he'll be seen as Mr Hood. His task will be easier if more Conservatives were volubly proud of measures that help people struggling to make ends meet by cracking down on top-of-the-scale tax-dodging and by fair taxation of £2 million homes.
I would have preferred much bigger tax cuts for strivers and businesses by deeper cuts in spending. Paul Goodman blogged about the lack of discussion of spending restraint earlier today.
Finally on 50p, credit should be paid to James Bethell and the Scrap The 50p Tax Campaign. Over recent months that campaign has enlisted business leaders – including the IoD, London First and 500 entrepreneurs – and economists to argue that 50p is "bad for jobs, bad for revenue and bad for Britain". Their campaign has appeared on many newspaper frontpages and has helped create the climate of opinion that means Mr Osborne can, indeed, scrap the tax.