The 50p tax rate

It was good to see in today’s Teleraph Mr Cameron say he did not like the 50p tax rate, and say the Treasury will now look at its impact on revenue. Income tax was boosted heavily at the end of the last financial year as companies and individuals made prompt payments of pay and bonuses to be taxed at the 40% rate. The Treasury needs a model which captures the incentive and disincentive effects of different rates.

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11 Comments

  1. Mark Wadsworth
    Posted May 22, 2010 at 8:26 pm | Permalink

    Yup, agreed. Whether as a cynical revenue maximiser or out of principle, any tax rate above 50 per cent should be opposed.

    This does not just apply to the very high earners, of course, it also applies to the millions of people on means-tested benefits and tax credits and so on who face effective income tax rates of 70 per cent to over 100 per cent.

    If it is accepted that there is a Laffer Curve for high earners (the revenue-maximising tax rate is less than 50 per cent), then there must also be a Laffer Curve for people at the bottom (the cost-of-welfare-minimising withdrawal rate is less than 50 per cent).

  2. Quietzapple
    Posted May 22, 2010 at 8:52 pm | Permalink

    Fanciful to imagine they don't have one, and clearly it was used when the higher rate of income tax was raised.

    Amusing that the lower rate is now lower than it has been in any living person's lifetime under a Tory Government.

    I suppose the old Osborne canard of flat rate tax will arise again.

    Notable that Pitt, who introduced income tax, brought in a few rates I recall. But then he regarded himself as a Whig, not a Tory, as claimed by Conservatives on YouTube.

    Vince Cable always looks a bit of a Whig to me.

  3. Frugal Dougal
    Posted May 22, 2010 at 10:23 pm | Permalink

    Too right – to get rich people to pay taxes here, a sensible first step would be not to frighten them away with stupid tax rates!

  4. MaxVanHorn
    Posted May 22, 2010 at 10:42 pm | Permalink

    Let us not forget that the 50% tax rate must also have the 11% NI added and the loss of personal allowence over £112000.It's nothing less than licensed theft.It's outrageous that a Capital gains tax can even be considered on top.This has nothing to do with freemarket economics, this is collective socialist policy;lets all share the impoverished misery equally.It stinks.

  5. Mark
    Posted May 22, 2010 at 11:35 pm | Permalink

    Agreed. This is good politics and, I hope, good economics.

  6. JimF
    Posted May 23, 2010 at 12:54 am | Permalink

    Even better a model which shows the beneficial effects of not tinkering about in the first place. Why cause totally unnecessary uncertainty in the first place?
    The 50p rate is almost certainly a non-starter in bringing in extra revenue. As a Ltd Company we would be looking at pension contributions, Efurbs, or just paying Corporation tax and keeping cash in the Company to avoid this rate plus NI on salaried income. Paying the exchequer more than you earn yourself for a hard day's work is just not on.

  7. Ex Liverpool rioter
    Posted May 23, 2010 at 2:07 am | Permalink

    John
    Sorry to dift off in a differant direction, but i like to say how much i am enjoying the new goverment. I am delighted to see:-

    ID Cards killed
    Gipsy sites to be policed

    However, Crime MUST be looked at:-

    (unseen link deleted-ed)
    Fed up with hearing "You know how much it costs to lock someone up…."

    So, you let him go & he gets a £45,000 a year job @ a bank does he?

    Nope, you still have to pay housing + Dole…..

    If you DO let a SCUMBAG go, you then need large numbers of Police to chase him, then pay all his legal cost, then the States legal cost……give him his day in court Etc………Only to have to repeat the cycle again & again………Can't we go with a simple "3 Strikes type rule"

    They are told, ok your had X number of chances, Ok Next one is 5 Inside…..

    Mike

  8. BillyB
    Posted May 23, 2010 at 10:31 am | Permalink

    Can we stop messing about, call a spade a spade, and merge employees NIC with Income tax. Unless you have a real justification for keeping them separate.

    • Andy B
      Posted May 23, 2010 at 11:39 pm | Permalink

      I agree. Surely having these two things kept seperate, it must be costing more in terms of administration at the Government end.

      Why not just merge it all into one payment to be made to one office?

      As an aside, whilst it might be little more than an exercise in semantics, I would prefer income tax be abolished and contributions simply to come under the name of National Insurance.

      When the people who collect the money start to think more along the lines of it being collected in exchange for something of value which is to be given BACK to the person who gave the money, perhaps we will start to get somewhere with a lot of other issues regarding how the raised funds are spent?

  9. Mark
    Posted May 23, 2010 at 12:35 pm | Permalink

    This doesn't just apply to income tax. A more careful examination of the impacts of proposed changes to CGT and to CT (particularly in relation to capital intensive industry) would avoid some undesirable consequences not only to yields, but also to activity.

    • Mark
      Posted May 23, 2010 at 5:13 pm | Permalink

      I now read that David Cameron is quite rightly moving in to No 11 to avoid the expense of trying to provide adequate security at his Notting Hill home. I also read that he is planning to rent his Notting Hill home out, thus avoiding risking crystallising any CGT bill that might apply. At least he seems to understand the implication of the legislation he is proposing on his personal circumstances.

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    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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