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Why a tax cut for millionaires is “a good thing”

Yesterday Parliament debated the 50p tax cut for those earning (or paying themselves) more than £150,000 a year, or £3,000 a week, all the way up to the chief executives of the FTSE-100 companies whose remuneration package today averages £4,80,000 a year, which works out at £93,300 a week. The Tories are in favour, and it’s always interesting listening to them trying to defend the indefensible.

Basically they had two arguments. One was that there has been such a scale of avoidance by the mega-rich using one device or another that hardly any extra revenue had been raised, so that abolishing the 50p rate in April 2013 will involve little or no loss to the Exchequer. Their other argument was that demonising the extremely rich with punitive tax measures would drive them away from the UK, and that would have a devastating effect on UK competitiveness. Both of these arguments are wrong.

Although the HMRC report on the 50p rate states plainly at p.52, table A2, that the Treasury will lose £3bn if it is repealed, the Tories claimed this was flawed because if one took account of behavioural effects (i.e. steps to avoid the tax) and what they arcanely referred to as taxable income elasticities, the loss would be only £100m. What gives the lie to this (convenient) claim are the government’s own figures in Hansard (25 April, col. 898) which reveal that 80% of those earning over £1m a year paid above the 40% rate. In other words, thousands of the super-rich were (and are) paying the 50% rate and were unable to dodge it. In that case the revenue loss from the abolition of the 50p rate will be substantial, not negligible.

The Tories’ other argument is that you cannot increase tax on the wealthy because Britain’s competitive and dynamic future depends on them. This is the old Thatcherite canard, the ‘trickle down’ theory. Well, we now know that the opposite is true – that wealth has trickled up and inequality has ballooned as never before. But even if that were not true, where is the evidence that a low tax rate for the super-rich correlates with a competitive economy. Since Nigel Lawson reduced the top rate of income tax in 1987 from 83% to 40%, the UK has not had a surplus on its current account in the balance of payments for 35 years, our share of world trade has reduced by two-thirds from 6.5% in 1970 to 2.3% now, and the UK deficit on traded goods reached the disastrous level of £100bn last year or 7% of GDP. So low taxes on the rich have actually produced monumental uncompetitiveness. An if you want a competitive economy in Western Europe, try the Swedish one where, incidentally, the rates of tax on the well-off and rich are high. QED.

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