If you want to tax the rich more, cut the rates

 

                The Chancellor said in his budget the Revenue will study the effects of the 50% tax rate on tax revenues.

                The Adam Smith Institutue has already published some of the important findings. (In the “Revenue and Growth effects of Britain’s high personal taxes”)They show that the Howe Lawson income tax cuts in 1979 and the middle 1980s increased tax revenue and the proportion of income tax paid bythe rich substantially . At 83% the rich paid 11% of the tax revenue. At 40% the rich were paying 21% of the total by 1997. The total went up.

                  Democrat President Kennedy knew this was true.  He said ” It is a paradoxical truth that tax rates are too high today and tax revenues too low and the soundest way to raise the revenue in the long run is to cut the tax rates….” Kennedy’s cut increased tax revenue and the proportion paid by the rich.

                       President Reagan went much further, cutting the top rate from  70% to 28%. In 1981 the rich paid 17.6% of income taxes. This soared to 27.5% by 1988 as the big tax cut worked through. Total revenues powered ahead.

                           President Bush I managed to lower the revenue with his 10% surtax on the top income bracket.

                           The Adam Smith Institute also have similar evidence from France, Canada, Hong Kong, India and Russia. Each time top tax rates are cut revenue rises and the rich pay a bigger share. What more evidence does the Revenue need, before it decides to tax the rich more here too by cutting rates?

                          Governments usually tax things they do not like or wish to reduce. So they tax smoking heavily to try to stop it. They tax drinking heavily to try to reduce it. They should not now tax enterprise, talent and hard work heavily for fear of discouraging and stigmatising them.  Surely we need more of all those things, not less, to get out of our economic difficulties?

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77 Comments

  1. lifelogic
    Posted March 31, 2011 at 7:26 am | Permalink

    This idiotic 50% rate was introduced in April 2009. How long does it take for this bunch (of often PPE graduates) to make up their minds that lower rates mean more tax, more jobs, more investment and fewer companies, high earners and the wealthy leaving. Overwhelming evidence is available a the click of a mouse has HMRC not looked at it.

    Better for all but the Liberal would rather have something that made us all poorer but “looked” fair for political reasons of envy.

    The idiots even increased the clearly proven & counter productive non dom tax.

    Cut off you nose to spite you face and all suffer together but Liberally and “fairly”.

    • lifelogic
      Posted March 31, 2011 at 10:06 am | Permalink

      You say “Governments usually tax things they do not like or wish to reduce” actually they tax everything they think they can get away with. Clearly they want few golden goose non doms for some reason.

      Over taxing businesses and the people who run them – who would probably reinvest in the business and thus create real jobs is mad. Especially whey they will waste the proceeds (if any in reality) in green banks, windmills, HS2 Boris bikes, pointless wars and the like.

      • Stuart Fairney
        Posted March 31, 2011 at 3:59 pm | Permalink

        Almost nothing of what government does has any point, or could not be done better and cheaper by the private sector. All we really need are courts, prisons, a few police and a citizen militia a la the Swiss model.

        When that was accomplished, we could send the legislators on their merry way as quite un-necessary. They don’t want this as money-for-nothing and rent-a-quote nonsense and generally acting as the head prefect pays quite well. Thus HS2, boris bikes, olympics, ‘free’ laptops, mass innoculations, our third war (try that with a citizen militia!), EU nonsense, CO2 nonsense, fiat non-currency etc etc ad nauseum

        We do not need anything like so much government.

    • Euan
      Posted March 31, 2011 at 11:26 am | Permalink

      What on earth has logic or evidence got to do with government policy? If logic was the guiding force for politicians would we have unending, pointless wars in country’s that do not threaten us? Would we have the “war on drugs” that achieves nothing except wasting money? Would we belong to the EU club that smothers us in ridiculous and expensive regulations? Would we have just had a stupid, intrusive, expensive census when all the information is already held by government departments? Would we be building hugely expensive aircraft carriers for which there will be no aircraft? Would we have a public sector that employs well over 5 million people to administer Britain when the whole British Empire was run by 160,000?

      • Mike Stallard
        Posted March 31, 2011 at 2:39 pm | Permalink

        What you seem to be saying is that we have too much government. I totally agree.
        But I do not think the majority of our fellow Citizens are with us.
        They seem to think that if you take the Nanny State away, they will all shrivel up and die.
        In fact, of course, things get fairer when competition is introduced. The intrusive ignorant civil servants who bear no relation to the examination selected gentlemen of the nineteenth century actually cause chaos. The high taxes are counterproduictive as more and more people do tax avoidance (and, let’s face it, tax swindles too).
        Meanwhile everyone is encouraged to sell out and live off the State.

        Drugs? Welfare is much more dangerous.
        And we as a country are addicted.

    • REPay
      Posted March 31, 2011 at 2:47 pm | Permalink

      Most of the PPE graduates stop studying economics and oncentrate on Politics and Philosophy (certainly true in my day.) One who did specialize in Economics was Ed Balls – who was behind both the fantasist Brown borrowing binge and continuing to preside over an education system whose main aim is to make people more equal, not to educate them and to equip our citizens to compete in a competitive economy where the valueless bits of paper they are given may not equip them well.

  2. alan jutson
    Posted March 31, 2011 at 7:32 am | Permalink

    I assume that with the increased cash left for their own spending choice, VAT income for the Government may rise as well !

    The important thing is that hard (in most cases) work is encouraged, the economy more likely to grow, and with more people in work also paying tax.

  3. norman
    Posted March 31, 2011 at 7:32 am | Permalink

    Not sure if it is some Machiavellian plot or not but just this week the Lib Dems have made it clear that the only way the 50% tax rate will go is if it is replaced by something else to tax the idle rich, such as a mansion tax. As this will never happen we’re stuck with the 50% tax rate until after the next election.

    The conspiracy theory part of me thinks this is a bit too convenient. The Lib Dems can now stand up and say to their voters that they are fighting against the idle rich to save the poor from the nasty Tories, Dave & George can shrug their shoulders and say that their hands are tied by the ‘progressive’ (i.e. socialist) Lib Dems, and it saves them having to defend themselves on the Today programme from charges of giving tax cuts to the idle rich while the rest of the country suffers.

    So the Chancellor can say he is going to study this as much as he likes, he’ll just be throwing good money after bad. May as well accept the realpolitik of the situation. We now live in a high tax country and should just buckle under and accept it.

    • Bob
      Posted March 31, 2011 at 1:19 pm | Permalink

      “…the idle rich…”
      in my experience it’s generally the poor that are idle.

      “We now live in a high tax country and should just buckle under and accept it.”
      or move to warmer climes?

      Never mind, the private plane tax will solve all our problems (not).

      If the Tories cannot restore some level of education into our state schools as opposed to leftist indoctrination, then there is no hope for what was once referred to as Great Britain.

      • Jon Burgess
        Posted March 31, 2011 at 10:29 pm | Permalink

        The surest way to restore some level of education would be to re-introduce selection by ability, but as we all know, the Tories have rolled over and accepted all the egalitarian comprehensive drivel. What’s your view on selection by ability, Mr Redwood?

        Reply: I support it – I support grammar schools, and think that if you want to play cricket or soccer for England you should be selected on ability. As I understand it we select on academic ability at 18 for university, but only at 11 in a few places in the country, or if your parents have money to pay for schooling.

        • lifelogic
          Posted April 2, 2011 at 7:46 am | Permalink

          Select and teach according to the aptitude, inclination, determination and ability of the pupil. Grammar schools and good technical/practical colleges are both needed urgently. Education should also not be indoctrination in big government ideas, all ideas and people are equal, green drivel and BBC think as it so often is now.

  4. John McEvoy
    Posted March 31, 2011 at 8:10 am | Permalink

    It’s not about revenue, is it. It’s about dishing out a spiteful punishment to toffs who dare to earn more than someone else.

    • Geoff MM
      Posted March 31, 2011 at 11:35 am | Permalink

      Make everyone toffs!! Bit like comp school not been as good as independents ok make all schools independent. Country is getting hammered by the EU ok leave the EU.

  5. Susan
    Posted March 31, 2011 at 8:27 am | Permalink

    So why are you not cutting the 50p tax then. We all know why, because of fear of public opinion. However, it is not just the 50p tax that is a problem, you have taken away the personal allowance of high earners, which should be everybodies right, plus extra National Insurance. This makes the tax take much more than 50p. Along with this you have put punitive measures onto their pensions to pull in more tax.

    You also missed out an important element as to why tax should be lowered for high earners, high tax rates especially for high earners impedes growth in an economy. A good Conservative would know this. Why would investors and people of enterprize come to Britain to be taxed to death. The lack of a good skilled work force is off putting enough, thats before we get to all the regulation on business that has been introduced. Then of course there is the lack of judgement of increasing tax on the oil companies and the banks, by Osborne, without proper consultation with either. This makes people of enterprize wonder exactly where the heavy hand of Government will fall next, thus there is a lack of confidence in what Government policy actually is. Osborne makes the right noises about growth, then does just the opposite.

    I will be frank John, people could almost say that Britain has a socialist Government in power under Blair.

  6. A.Sedgwick
    Posted March 31, 2011 at 8:46 am | Permalink

    Simple and low taxes also means much reduced evasion and avoidance. Each in my view is as bad as the other. Inheritance tax is a classic example , the only estates that really pay this are from middle income people, who worked hard, saved and owned their home. So in effect it is a tax on property. It would make more sense to replace it with a stamp duty increase for higher value property purchases.

    • Simon
      Posted March 31, 2011 at 12:06 pm | Permalink

      I cannot agree with you that tax avoidance is as bad as evasion .

      What are ISA’s and Pensions other than tax avoidance measures ? In the case of pensions the tax avoidance is very limited and it quickly becomes tax deferral .

      I am sure that many forms of tax avoidance could and should be recategorised as evasion .

      The overall simplification gained by closing tax avoidance measures might even outweigh the reduced incentive to save but this has yet to be demonstrated .

      • A.Sedgwick
        Posted March 31, 2011 at 6:59 pm | Permalink

        My point is there should be a level playing field for a flat tax system with no allowances.

        • lifelogic
          Posted April 2, 2011 at 7:54 am | Permalink

          Avoiding tax and using it wisely, rather than allowing the government do the opposite, is highly moral and desirable. It is in the interest of all.

          It is just a shame that legally avoiding tax usually means having contrived expensive structures, umping through government loops and the like, which are often wasteful and use expensive lawyers and accountants who could be doing something more useful.

    • Dave
      Posted April 1, 2011 at 8:50 am | Permalink

      “Simple and low taxes also means much reduced evasion and avoidance.”

      Tax evasion could (and should) be reduced by staffing HMRC with more people with fewer chummy ties to the tax dodgers they are supposed to be policing. Giving a tax breaks to people who would dodge it otherwise is questionable, as it sounds like the rich holding the poor hostage. You had best hope that the poor don’t find out, because the poor will ask they can’t refuse to pay tax until their rates are lowered too.

      Tax advoidance is indeed best prevented with simpler tax systems, as complex ones spawn loopholes for those wealthy enough to ask KMPG how to exploit.

  7. Javelin
    Posted March 31, 2011 at 8:55 am | Permalink

    There is a phenomena in pyschotherapy called the “Paradoxical Theory of Change” – it basically says things go in the opposite direction to which you intend. A simple example is a person trying to become more relaxed – the person gets more stressed at trying to relax. Anyway this paradox is very common in people with issues – and does have an number of underlying “mechanisms” that cause it – normally these are defence mechanisms that stop a person feeling bad feelings. So the person who tries to relax has some underlying problem with being relaxed (maybe they were ambushed last time they relaxed) and this causes anxiety whcih results in more stress.

    Anyway the point being that raising taxes is not a simple thing. People have a choice how they invest their time and in a similar way to psychology, tax causes pain under the surface and people avoid it – like they avoid bad feelings.

    So never expect a policy that introduces pain to have the desired effect, if people have the choice to avoid the pain they will.

  8. oldtimer
    Posted March 31, 2011 at 9:00 am | Permalink

    What more do you expect with the SDLP-DimLib coalition government of chumps in charge?

    What you say is perfectly obvious from the abundant evidence you cite. The present policy reflects, in my opinion, a mixture of political spite and political weakness. It is an unsavoury spectacle.

  9. Javelin
    Posted March 31, 2011 at 9:08 am | Permalink

    Just to add to my point on the Paradoxical Theory of Change. I wanted to repeat my point that I dont think the UK economy will start to recover until house prices fall. The logic is the same for taxes.

    People do not want to move because they believe that houses are over priced. Nobody wants to drop their prices because pensions have suffered and they see house prices as an alternative to their pension. Most houses have the mortgage paid off and the only people who will suffer are those who bought recently, old people trading down, buy to let landlords or divorces. There are relatively few people who will be hurt by falling house prices. The number of house sales isnow nearly a third of peak. Houses are a major part of the UK economic psyche.

    The reality is that young people cant afford high houses prices. Incomes wil fall due to global competition, demands on banks capital rations and Government debt and house prices will fall accordingly. Student debt, enforced pensions etc will lower spending. House prices will fall slowly over 10 years, mainly due to inflation. During this time people will not be able to move and the economy will stagnate psychologically. We will fall into a mire of depression as people are stuck in their houses. After the dot-com bust it took 18 months for the crash to happen – in slow motion- as people slowly moved out of equities into bonds and commodities.

    Interest rates need to rise to create liquidity in the economy. Higher interest rates will make people more willing to save and create an investment economy. People know the economy is deeply out of kilter which is why consumer confidence fell to MINUS 28.

    ** Taxes have a paradoxical effect and so do interest rates **

    • Lindsay McDougall
      Posted March 31, 2011 at 10:54 am | Permalink

      I agree with this arguement but I think that you are pessimistic about the time scale. Houses could be affordable again in about 4 to 5 years. If nominal prices drift downwards by about 2.5% pa and inflation is on average 2.5%, then real house prices will decline by about 5% pa. That implies a decline of more than 20% in 4 years, which will be on top of the 20% decline that has already taken place since the height of the house price boom.

      Of course, if base rate were to be increased, mortgage interest rates would increase (though not to the same extent) and that might accelerate the decline in house prices.

      • Simon
        Posted April 1, 2011 at 11:48 am | Permalink

        Inflation on average 2.5% ? Where have you been for the past 3 years Lindsay ?

        Taking a real term reduction of 5% per year over 4 years would lead to prices being 81% of what they are now .

        That is still nowhere near affordable for most people under 30 years of age and what will the unemployment rate be for that age group too ?

        I think you are underestimating how much they have increased in real terms .

        Maybe in whatever line of work you are in people will get cash salary increases but I suspect over half the population will not get a cash increase over the next 4 years , let alone one which keeps pace with inflation .

        The Govt is enthusiastic about relaxing immigration rules to allow more cheap labour in from India so maybe they will club together and buy houses .

        Regrettably I don’t see the Brits breaking their addiction to housing .

    • waramess
      Posted March 31, 2011 at 11:29 am | Permalink

      Interest rates left where they are will accommodate existing owners in houses they might not otherwise be able to afford. They will not trade down because they know they will not be able to secure another mortgage. Brown tried to maintain the bubble and this is what we get.
      Increase interest rates and people will find their houses reposessed and that will start a collapse in the house prices which will eventually result in the first time buyers being able to get back into the housing market.
      This is the scenario our politicians fear because there is a delay between the collapse and the recovery, and nobody wants to be seen as the author of the collapse.
      As for the tax rate. Well The Sun will not be at all happy with a government that appears to be rewarding the rich, particularly as most of the government are rich themselves, and if The Sun does not like it then The Mirror will not like it and then The Guardian will not like it. Simple.

    • Alte Fritz
      Posted March 31, 2011 at 12:43 pm | Permalink

      Very interesting point. My take on the discomfort the public evidently feel about low tax rates is that people want those better off than they are to pay a higher rate (envy), and do not like the idea that they will not do so voluntarily (by not taking avoidance measures).

      Somehow, the idea that high tax rates are public spirited has become stuck in the public psyche. Should we blame World War II and the ethos that flowered then?

      • Jim
        Posted March 31, 2011 at 8:02 pm | Permalink

        I think we should actually blame the terrible state of education in this country. I am firmly of the opinion that a significant proportion of people (who are allowed to vote of course) think that a flat rate tax of (say) 20% for all means that someone on £50K pays the same amount of tax as they do on £20K. They don’t comprehend what a % is. Thus they demand that the % rate for ‘the rich’ is higher because then ‘The rich will be paying their fair share’, totally oblivious to the idea that a ‘fair share’ would mean a flat rate % of all incomes. Its mathematical illiteracy that causes such thoughts.

        • Simon
          Posted March 31, 2011 at 11:24 pm | Permalink

          Over half the population cannot understand compound interest .

          This does not seem to stop them signing loan agreements .

          Ergo there needs to be better consumer protection .

          I’d go as far as to say money should be taken away from them by the state to fund a proper state pension before the financial services industry fleeces them .

          • Stuart Fairney
            Posted April 1, 2011 at 2:43 pm | Permalink

            No, the half need to learn to understand compound interest, you are not their father.

    • Bob
      Posted March 31, 2011 at 1:47 pm | Permalink

      With interest rates a 0.5%, and inflation looming who wouldn’t want their savings invested in something solid?

      • Stuart Fairney
        Posted March 31, 2011 at 4:03 pm | Permalink

        It ain’t looming, it’s here and now* unless you believe the official figures.

        Been to the supermarket or the petrol station lately?

        (*I concede it will be much worse in the future)

  10. Brian Tomkinson
    Posted March 31, 2011 at 9:18 am | Permalink

    Another of Sir Humphrey’s tactics – when you want to kick an idea into the long grass set up an inquiry. I think you can forget about any rate reduction in this parliament.
    In any discussion about governments and taxes it is well to remember these quotes from Ronald Reagan:
    “Government’s view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.”

    “The problem is not that people are taxed too little, the problem is that government spends too much.”

  11. John Ward
    Posted March 31, 2011 at 9:31 am | Permalink

    If taxes on income are this paradoxical, then we should change the criteria for taxation.
    We should have done this decades ago, but the inertia as regards UK tax reform itself has the tendency to produce enervation in those who try to achieve it. Let’s say, shall we, that the Sir Humphreys have a ‘can’t do’ attitude when it comes to this one.

    This piece is perfectly sound as far as it goes, but misses the innate inequity in the system: that large global corporate business pays a ridiculously small percentage of the total tax take. They can afford legions of tax accountants, but ordinary people can’t. Whether one is of the Left or Right, it is fundamentally (and arbitrarily) unfair.

    A tax system based on social behaviour would be the ultimate answer – it would revolutionise our culture and cut costs massively. But it will never happen: the British political class was drained of any remaining radicalism thirty years ago.

  12. acorn
    Posted March 31, 2011 at 9:55 am | Permalink

    JR, I get the impression you are struggling to fill this page at the moment? There is quite a bit of re-cycling going on. This post is either late for the recent budget; or, very early for the next one. It won’t play on the local government election doorstep either. You are not alone; there are thousands of liberal democrat local councillors; in opposition to conservatives; having the same problem with their election leaflets.

    The more I watch the parliament channel the less I know. Yesterday, Dr Sarah Wollaston (Totnes) (Con), pushed another bit of nanny state with her alcohol Bill. Then, Philip Davies (Shipley) (Con), slagged it every which way as an extension of nanny state. The question was put. I expected to hear at least one NO. Nothing; silence; “the ayes have it”. How does that work then? Was it a cunning plot?

    As next door’s dog has just barfed on my drive; this has reminded me of the debate, yesterday, on the Police Reform and Social Responsibility Bill. I am not against the concept of an elected “Boss Hogg” and his command over our equivalent of “Sheriff Rosco P. Coltrane”. But, would it not have been better to rationalise the structure of local government in ENGLAND first. I would like to elect an executive Mayor of a recognisable geographic area; that is coterminous for all government services, long before I think about a crime commissioner. The present government is no better at designing systems than the last one!

    Isn’t Red Dawn great as madam deputy speaker? She treats MPs like infant school pupils; very appropriate.

    Reply: No, I am spoilt for choice on what to write. The tax issue is topical bercause the Chancellor is just starting his review of the effects of the 50p tax rate and this is a contribution to that review.
    10 Minute Rule Bills are not usually voted on as they do not usuaully proceed any further – there is no need to vote them down.

  13. English Pensioner
    Posted March 31, 2011 at 9:59 am | Permalink

    All that you say has been known for years, as is the fact that Labour politicians like to raise taxes for the rich because of jealousy, in spite of knowing it won’t bring in any extra money.
    The higher that taxes are, the more incentive there is to avoid them, either legally or illegally. For the rich this means employing expensive lawyers and accountants, for the self-employed, it means more “cash-in-hand” deals. For the rest of the employed it results in higher taxes in due course as we have no means of avoiding PAYE and the government needs to then raise more tax to cover the shortfall.
    With low taxes, its not worth the risk of “fiddling”, and the expensive accountants become too expensive for the savings that they can produce, so people pay up.
    Simple really, but jealousy seems to prevent rational thought!

  14. Sir Graphus
    Posted March 31, 2011 at 10:11 am | Permalink

    Perhaps to illustrate your point, the Chancellor is running a case study in Aberdeen at the moment; by raising tax on highly marginal oil developments, he can observe a town’s economy go to ruin and his revenues rapidly tail off.

  15. Jim
    Posted March 31, 2011 at 10:13 am | Permalink

    @Lifelogic: the 50% tax rate didn’t come into force until April 2010. It may have been announced in the Budget in 2009.

    The recent unexpected rise in tax revenues in January has been put down (by the OBR no less) to people declaring extra income in the tax year 2009/10 so as to avoid the 50% rate in 2010/11. So its a fairly good bet that tax revenue (from the 50% rate at least) in 2010/11 and beyond will be lower than otherwise calculated. It may actually reduce the overall tax take entirely and thus create negative revenue for the Treasury.

    That’ll show those rich bankers eh??

  16. StrongholdBarricades
    Posted March 31, 2011 at 10:22 am | Permalink

    How about just stop taxing people to redistribute people’s own money?

    How much would that save for front line services?

    When can I vote for my local NHS representative?

    When can I vote for my local council chief executive?

  17. Lindsay McDougall
    Posted March 31, 2011 at 10:29 am | Permalink

    John Redwood has gathered a considerable body of eveidence in favour of his assertion that lowering the top rate of income generates more revenue. I suggest that he should summarise this eveidence in a short paper, send it to Mr Nick Clegg for his urgent attention, then a week later table a question for the Deputy Prime Minister: “Is the Deputy Prime Minister of the opinion that the 50% rate will increase income tax revenue?”

    I think that it is high time that questions for the Deputy Prime Minister became a regular feature of Commons procedures – say once a month. After all, we do have a coalition government.

    Another unorthodox Commons procedure that should be adopted is to propose that “This House has no confidence in the European Union”. It could either be a motion in its own right, proposed and seconded by MPs from many parties, or it could be an amendment to a Labour no confidence motion. Such a motion would give Mr Redwood and others an opportunity to list all the ways in which the EEC/EC/EU have misgoverned Europe since the Treaty of Rome was signed in 1957 and since we joined in 1973. Of course, you wouldn’t expect such a motion to succeed but if you won the support of more than 100 MPS it would send a very strong message to the two front benches.

  18. Graham
    Posted March 31, 2011 at 10:39 am | Permalink

    This taxation point is symptomatic of the UK today. The oppressive environment created by NuLabour has been largely continued by this regime.

    Our country has to all intents and purposes been taken from us by the EU and it no longer has aspiration or spirit. Stupid policy is developed daily – Carbon taxes force more jobs to other countries and actively stop growth and freedom of speech gone.

    I’m much too old to leave for other places but I will encourage my well qualified daughter to go and find a better life somwhere else and leave the UK for Islam.

    It is very very sad what we have now and what we have to look forward to.

  19. NickW
    Posted March 31, 2011 at 10:47 am | Permalink

    What 13 years of labour Government taught us is that taxing the “rich” does not facilitate “equality” at all. The poor got poorer under Labour.

    When I hear Osborne saying that it is only fair that the rich should “Pay more”, I wonder which planet I am on. Even on a flat rate tax system the rich obviously pay more, but on our stratified tax system, they pay much more. Osborne should be educating people about the realities of taxation, not pandering to Socialist envy.

    High taxes make the State bigger, they do not make the poor richer.

    An efficient tax system maximises tax income and stimulates enterprise.

    Self evidently, the more money a Government has, the more it is able to help the poor, heal the sick, and look after the elderly.

    • APL
      Posted March 31, 2011 at 11:13 pm | Permalink

      NickW: “not pandering to Socialist envy”

      Welcome to the new Tory party, the spineless party.

  20. Stuart Fairney
    Posted March 31, 2011 at 10:58 am | Permalink

    The Lib-Dem part of the government will need a report telling us what we already know, that tax cuts mean increased tax revenue. In order to get this past the various lentil-munching Beardsley Weirdsworth types in their party/electorate, they will need a seemingly unbiased report.

    Hardly political leadership, but then we are talking about the Liberal Democrats.

  21. Chris Davies
    Posted March 31, 2011 at 11:20 am | Permalink

    Obviously a tax rate which is set too high will lower revenue, however so will one which is set too low (as in too low to meet the current deficit financing requirement). Basically I’m asking is there any way to estimate where the top of the Laffer Curve is for the UK today, and what should that mean for UK tax rates?

    • Stuart Fairney
      Posted March 31, 2011 at 4:06 pm | Permalink

      Yep.

      Estimate it at zero.

      Watch unemployment vanish in 24 months.

      Ergo reduced social payments and a balanced budget.

      • Simon
        Posted March 31, 2011 at 11:59 pm | Permalink

        Given that the income tax take will not even cover the benefits bill this year you are onto something .

        Your idea is obviously too radical to be accepted now but the coalition could move in the right direction by raising the personal allowance towards the median income and take aim at that sleight of hand known as “tax credits” .

        The Govt gives people back some of the money it has taken and tells them they should be grateful .

        All designed to perpetuate the illusion of a benevolent state , remove peoples self respect and increase dependency .

        I personally don’t want to throw the baby out with the bath water and want to retain a welfare state for those who need it and retain universal access to healthcare – without the spoon feeding .

        To get that all to work you have to have a populace who are capable of making their own decisions and actually do so .

        That is the last thing LibLabCon want . They want everybody to be reliant on the state .

        • Stuart Fairney
          Posted April 1, 2011 at 2:49 pm | Permalink

          I honestly don’t think telling the government to keep their hands of your hard earned cash is that radical. Why should these bums decide how much of your own money you be allowed? And lets not forget, mass income tax is a relatively new phenomena, but one that is now accepted as the norm.

          It’s not legitimate, it’s coercive theft. Pay or be kidnapped to a government cage.

          As to the welfare state, I honestly think private charities would do a far better job of looking after the poor, just as the splendid hospice movement does with the terminally ill. But one thing is for sure about the poor, there would be far, far fewer of them with no welfare state and no income tax.

          • Simon
            Posted April 2, 2011 at 4:14 pm | Permalink

            Good point about income tax being a relatively new phenomenon .

            Too much to hope that that fact would ever be taught in history lessons .

            Creeping normalcy .

  22. zorro
    Posted March 31, 2011 at 11:33 am | Permalink

    This housing obsession with the British is more like a mental illness…..People boring you about where they live. It us hugely distorting the UK economy and its ability to recover both practically and psychologically. The government must lance this boil now one way or another, to allow more finance to be directed towards productive capacity or other investments. I don’t think that the government knows what trouble it is storing up for the future with disaffected workers.
    Frankly Mr Osborne appears ludicrous….what was he doing for five years studying the tea leaves…..Oh no, he was matching Gordoom’s bankers spending plans or pretending to pathetically oppose them slightly. This lot, I’m afraid, are not up to the job….tax, regulate, subsidise…..Common Purpose socialists and communitarians beholden to the EU…

    Zorro

  23. Andrew Johnson
    Posted March 31, 2011 at 11:56 am | Permalink

    It’s not just the rich whose taxes need to be lowered.

    Via Guido Fawkes – anonymouse in the treasury skirting boards says:
    March 20, 2011 at 11:21 am

    The true rate of tax on wages includes Employer’s and Employee’s NI, as both come out of the money required by a business to pay their staff.
    Employer’s NI is paid on all income and Employee’s continues at 1% after they reach the upper threshold
    The resulting tax rates are therefore 43.8%, for basic rate taxpayers,
    53.8% for middle rate taxpayers, and 63.8% for those paying top rate tax.
    NI is going up in April so you can add 2% to all these rates.

    Bloggers have posted ad nauseum on the Coalition government’s failure to:-
    a) Recognise they are in a propaganda war.
    b) Effectively propagandise.
    c) Courageously implement real conservative policies

    As you have rightly said Mr Redwood, there is an overwhelming case for lower taxes, because long term they generate more tax. They also allow individuals to retain more of their income and spend or save as they wish. This seems to me part of what true conservatism is. However, since this reduces the power of the state and the ruling p0litical classes, I don’t expect to see it happen any time soon.

    The current woeful lack of original thought and courage from our MP’s (with honourable exceptions) reminds me of some some lines from Gilbert and Sullivan’s “HMS Pianafore” written in 1878.
    ” I grew so rich that I was sent
    By a pocket borough into Parliament.
    I always voted at my party’s call,
    And I never thought of thinking for myself at all.
    I thought so little, they rewarded me
    By making me the Ruler of the Queen’s Navee!”

  24. Iain Gill
    Posted March 31, 2011 at 12:12 pm | Permalink

    heavy tax on tobacco and booze doesnt reduce it, rather it just results in more being brought in from other countries using both legal and illegal means

    • Simon
      Posted April 1, 2011 at 12:09 am | Permalink

      I has not made the connection – thanks for pointing that out Iain !

  25. sm
    Posted March 31, 2011 at 12:38 pm | Permalink

    I think the 50% does raise tax and it does what it says on the tin and raises revenue via inflationary growth. Its the price of socialism for banks and a huge public sector.Until that changes….

    Perhaps it would be better to restrain/cut spending to public sector/EU without hitting frontline services and end the subsidies to the banking sector via QE and ZIRP and tackle legal but highly artificial avoidance which was not intended by parliament. (An general antiavoidance rule). Allow interest rates to slowly rise to normal levels.

    Parliament et al /EU could cut themselves in half and im sure we wouldn’t notice too much difference.

  26. Bazman
    Posted March 31, 2011 at 12:44 pm | Permalink

    It’s interesting why the Tories support regressive taxes over any other form of taxation. The fact is that the rich cry the most about taxation and believe the most they they should not pay it. Regan’s tax cuts made the rich richer and little else whist moving a greater burden onto the middle classes and the poor. It’s quite easy to understand as about 10% of the population own the most of the wealth in this country and over the years the rich have become richer and the middle more poor. Irrefutable fact. Party of the rich and their supporters. Bill Gates apologists.

    • zorro
      Posted March 31, 2011 at 5:56 pm | Permalink

      Bazman, you state that…..’Regan’s (not Jack Regan….slagggg! you mean ‘Ronnie Raygun’ as Arthur Scargill used to call him!)) tax cuts made the rich richer and little else whist moving a greater burden onto the middle classes and the poor.’…….

      But when tax rates were lowered more revenue came in and taxes were not raised on the middle classes or poor. A greater burden did not fall on the middle classes and the poor, there was more economic activity because there was an incentive to work (you can keep some money) and, as a result, more money came through tax receipts…..The cake got bigger and because of that we have more to eat!….yummy! (John, Gideon should explain it to people like this, as the best way to get to people is often through their stomach….

      zorro

      • zorro
        Posted March 31, 2011 at 6:00 pm | Permalink

        …or perhaps David Blair could explain that when you have more yeast (zest/incentive) in the mix, you get a bigger Eton mess or partridge pie….Oh best not to do so, he’ll probably use it to justify bombing another country (aka ‘…dropping democracy from 10,000 feet….’)

        zorro

      • Bazman
        Posted April 1, 2011 at 1:06 pm | Permalink

        The cake got bigger due to easier access to credit and growth of the economy which is what counts more than the rate of tax on tax revenues. If anything Reagan, who I doubt could drink a bottle of Scotch during the course of a normal working day and then still go to the pub, increased taxes overall and any tax reduction were ones that had already been put up. What you and John Redwood are arguing for is the trickle down effect which I and many others do not believe. A Tory trick of making the markets. The ‘market’. The rich put their money in the bank if they are not taxed and the banks lend it out in the case of Ireland, to fund a property bubble instead of industry due to the safer bet and higher rates of interest for them. The rich are often idle and so are their banks. You’re nicked.

        • zorro
          Posted April 6, 2011 at 10:21 pm | Permalink

          They weren’t ‘anti Reagan’ he was OK, he did star with Bonzo in a film!

  27. startledcod
    Posted March 31, 2011 at 1:03 pm | Permalink

    My understanding of the numbers is as follows; the top 1% pay 24.1% of personal tax, the top 10% pat 53.3% and that the entry threshold into the top 1% is £117,00 per annum.

    What frightens me is that with this constant ‘soak the rich’ rhetoric the most mobile tax payers we have are in the top of the 1%. If, say, just 5% of that 1% were to leave we could well be losing 10% of personal tax revenue. Conversely with a low top rate (am I correct that 38% is considered the current realistic optimum) the top 1% would contribute more as the mobile money comes in.

    Given the quantity of available evidence why does anyone believe otherwise? To win the argument the word ‘fairness’ has got to go. It is meaningless except in the lexicon of the redistributionists for whom the rich have to be seen to be, in some way, impoverished.

    Start getting the rates down now.

  28. Tapestry
    Posted March 31, 2011 at 2:30 pm | Permalink

    You misunderstand their intention. The privileged who pay no tax are too rich to be troubled by any nation’s tax authority. They are worried that people might become wealthier and close the gap on their privileged position. As these same super-rich people also control the World’s Single Government, and have sown a fifth column throughout our government under the pretence of creating future leaders, known as Common Purpose, and as our senior politicians are in the pay of, the policies adopted are not based on a desire to create wealth but to destroy it.

    They want us in deep debt so they are in power over us.

    • waramess
      Posted March 31, 2011 at 4:25 pm | Permalink

      Then, when we are seriously weakened, they send in the men with white coats to put us in straight-jackets. It is all so unfair, don’t you think?

      • Simon
        Posted April 1, 2011 at 12:54 am | Permalink

        Waramess , you clearly disagree with a lot of what Tapestry’s saying but there are elements of truth there aren’t they ?

        Quote 1 “They want us in deep debt so they are in power over us”

        Doesn’t that describe the UK perfectly ?
        Overpriced houses to keep the droids working to pay off massive mortgages .

        Is it that much of a stretch to claim that it is deliberate and that the tables are loaded against the average man ,

        Quote 2 “these same super-rich people also control the World’s Single Government, and have sown a fifth column throughout our government”

        Well most politicians clearly do not report to the electorate so who do they report to ?

        “Fifth column” seems appropriate . How else would you describe traitors like Heath , Patten , Clarke and their colleagues in other parties like Mandie who have put the EU project ahead of UK interests for years ?

        • waramess
          Posted April 1, 2011 at 2:02 pm | Permalink

          Frankly were I to believe any conspiracy theory it would have to relate to the bail-outs currently being imposed on Greece, Portugal and Ireland, which are being imposed to save the German, French and UK banks and impoverish the economies of those taking the bail-outs.
          To whose benefit?

          • Stuart Fairney
            Posted April 1, 2011 at 3:03 pm | Permalink

            To the benefit of the ECB and the EU bureaucracy who can now impose economic policy on states in receipt of bailouts. Handy for those seeking supra-national authority outside democratic channels.

  29. Glenn Vaughan
    Posted March 31, 2011 at 4:30 pm | Permalink

    Finally – a debate on a topic that actually matters. As I understand it, basic rate taxpayers will have 32% of their salary confiscated by the Inland Revenue from next week i.e. 20% income tax and 12% NI contributions. That figure should be reduced to an overall maximum of 25% and the trend should then be downward.

    The next pertinent question is what would the Government do with the extra revenue? They would not reduce the deficit and the immense national debt but would waste it on a moribund NHS!

  30. BobE
    Posted March 31, 2011 at 4:52 pm | Permalink

    May the 5th should hit the lib dems quite hard. Will it be had enough for his own members to begin to worry about what will happen in 4 years time?
    The very muted responses to NC at the lib dem conference told the story that many in the party realise that they will be decimated in the next election.
    Assuming most of the lost LD voters switch to labour then the next government looks like Labour but led by Balls.

    • Simon
      Posted April 1, 2011 at 12:59 am | Permalink

      A Govt led by Balls .

      What a terrifying thought .

      Megalomaniac , not even borderline .

  31. Electro-Kevin
    Posted March 31, 2011 at 5:10 pm | Permalink

    Bang on the money, Mr Redwood.

    I avoid paying tax as much as possible now (and I’m most certainly not rich) because I don’t like the way it’s being spent. I’m sure many others feel this way too.

    • APL
      Posted March 31, 2011 at 11:17 pm | Permalink

      Electro Kevin: “I avoid paying tax as much as possible now ”

      When the tax on a thing is more than 100% of the value of that thing, in my opinion, it becomes a moral obligation to to reduce [in a legal manner] your exposure to that tax.

      Electro Kevin: “I’m sure many others feel this way too.”

      Agreed.

      • Electro-Kevin
        Posted April 1, 2011 at 4:31 pm | Permalink

        Ergo petrol is taxed at a rate of 200% – not 60% as we are continually told.

  32. Conrad Jones (Cheam)
    Posted March 31, 2011 at 6:14 pm | Permalink

    Mr Redwood,

    I like the historical reference to President Kennedy.

    I’m in favour of reducing Taxation for the reason that it will stimulate growth from private individuals and not be wasted by Government Departments who all too often find it easy wasting other peoples money.

    I didn’t realise that he was as financially astute as you have highlighted, but it does not surprise me.

    He resided over a US Dollar that was backed by Gold and he had also issued an Executive Order to issue debt free United States Notes (Not Federal Reserve Notes). Dimes, Quarters and Half Dollars had 90% Silver content up until 1965 when it dropped to 40%.

    Those were the days.

    If the Tax burden is reduced significantly, will we just end up paying off more of the Interest Payments on our current and increasing debt through new issues of Treasury Bonds and Gilts through the DMO?

  33. Jon Burgess
    Posted March 31, 2011 at 10:53 pm | Permalink

    Mr Redwood, you are right, of course, but who in your Government is listening to you? None of them (or very few of them, lets be honest). But what can you do about it?

    When the Conservatives won power in 1979, there was a sense that the collective parliamentary party had a clear aim and all Tory members of parliament had the same conviction – to reverse Labour’s diabolical economic policies and reverse the fortunes of the country by taking on the unions and reforming the tax system by rewarding enterprise.

    In the last election, a flea bitten dog could have beaten Gordon Brown, but somehow Call me Dave failed. And why was that? Because, your party is no longer conservative and no longer articulates conservative ideas.

  34. zorro
    Posted April 1, 2011 at 7:47 am | Permalink

    ‘backed by Gold and he had also issued an Executive Order to issue debt free United States Notes (Not Federal Reserve Notes)’…..history tells me that attempts by former presidents to re-establish some democratic, debt free control over currency issuance were not good career moves and led to severe attacks of ‘lead poisoning’……

    zorro

  35. Tom
    Posted April 1, 2011 at 10:08 am | Permalink

    Just a thought but what system is used to tax mp’s is it paye.How are they taxed

    Reply: Yes, an MP’s salary is taxed like anyone else on a PAYE payroll. At year end an MP also has to submit a report of all office costs and other expenses incurred and claimed. In other jobs I have undertaken in the past I personally did not have to report to the taxman my secretary’s salary and travel claims as I do as an MP.

    • sm
      Posted April 1, 2011 at 2:07 pm | Permalink

      Doesnt seem to apply to the upper house?

      I understand the House of Lords apparently get a £300 per diem tax free allowance.(why?)

      • Bazman
        Posted April 1, 2011 at 6:17 pm | Permalink

        Not bad money for turning up. If you need to turn up that is.

  36. Bazman
    Posted April 1, 2011 at 1:40 pm | Permalink

    Well done Gideon. Lets sort out these deadbeats.
    Housing benefit is capped today which of course Labour are dead against. As it stands and lets not help either side by quoting per week. One bedroom property is limited to £1083 pm, 2 bed £1256 pm, 3 bed £1473 pm and 4+ bed £1733 pm. Pretty serious amounts for anyone working or on benefits getting 25k. Looks like the Tories have called the landlords bluff here. Lets see how easy they find to rent out their properties at these rents in the private sector. Maybe they should try this tactic a little more often with the private sector. This is a blow to supporters of the middle class social security system, not a blow to the poor and the taxpayer. The rented property sector in Britain is unregulated and now even more free and the property market in general will be less distorted by government money. Landlords rejoice and with an interest rate rise there will be more good news to come. Lets get this property market moving again.

  • About John Redwood


    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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