Mr Brown left the Coalition government a nasty posion pill. He put Income tax (and NI) up to 52% on top rate payers, and he raised National Insurance, the tax on jobs. The incoming goverment moved a little to take some of the sting out of the NI, but left the high top rate of Income Tax in place. They then added to the problem by raising Mr Brown’s very competitive 18% rate of Capital Gains Tax to 28%.
Throughout the Labour years they left the top rate of Income Tax at 40%. They cut the rate of Capital Gains Tax. This made the UK an attractive place for investment and enterprise relative to the continent, and gave people a reasonable chance of competing against the lower tax jurisdictions of Asia and the Americas.
I agree with the aim of the main political parties to get more tax revenue from the rich to bring down the deficit. The question is how do you best achieve this? The latest Income Tax receipts show these are now falling. The top one per cent of IncomeTax payers pay 30% of the total Income Tax collected. This is a steeply progressive tax system. Some of them are relocating elsewhere. Some are taking their new ventures offshore. Some are sitting on their hands, unwilling to work harder and undertake a new venture given the tax levels that would hit any success. There are still entreprenuers on strike, and entreprenuers who no longer like the UK tax and regulatory regime.
Both Labour and the Coalition government have followed policies of dearer energy, with green taxes and subsidies pushing up the cost of energy. The current Treasury now seems to see the dangers of dear energy. It squeezes incomes , hitting demand. It raises industrial costs, and sends a strong message to anyone thinking of setting up an energy intensive business to do it elsewhere.
Mr Osborne’s political antennae tell him cutting tax rates on enterprising people is against the spirit of the times. His economic antennae should also waggle and tell him the way to tax the rich more is to make it more worthwhile for them to stay here and invest here. The UK is simply no longer competitive on tax. That was Mr Brown’s idea, his farewell present, his poison pill. 40% and 18% were good rates for Labour in power. In irresponsible opposition they will go the way of socialists not in government and send out a message that all we need to do is to soak the rich, even at the expense of less revenue from them . The priority today should be more jobs and more activity.
Falling Income Tax revenues: January 2011 Total Income Tax receipts £22 billion, of which £10.9 bn was self assessment
January 2012 Total Income Tax receipts £21.8 billion, of which self assessment £10.3 billion.