Maya Goodfellow and Victoria Groulef on whether Labour should retain its 50p tax rate policy
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Yes
—The 50p tax rate was never meant to be a permanent measure when the Brown government introduced it following the 2008 economic crash. It is no surprise, then, that it has many detractors in the political sphere – despite the fact that poll after poll shows the public are in favour of it. The naysayers are wrong; increasing the top rate of tax to 50p is a right and fair policy to implement. Here is why.
One of the main arguments against the 50p tax rate is that it does not bring in much money. The conventional wisdom goes that capital flight will come into play prior to or after the top rate of tax is raised. But, as always with superficial truths, probe a little deeper and there is more to this than initially meets the eye.
Despite what some suggest, it is rare that people move in reaction to changes to the tax system. And much of the existing evidence about how much revenue the 50p tax rate will raise in the long term is unreliable. The HMRC’s 2012 report estimates that reducing the top rate of tax to 45p for people earning over £150,000 – as George Osborne did in 2013 – would raise more money than if it was left at 50p.
As advocacy group the Tax Justice Network has shown, the official estimates about how much revenue is made or lost through tax changes are so uncertain that they are ‘essentially meaningless’, particularly as they are based on short-term, not long-term, outcomes.
The belief that cutting tax rates is better for the economy also rests on the ever-popular idea of ‘competitiveness’: the notion that the United Kingdom must have a ‘competitive’ tax system if it is to have a flourishing economy. If this statement is taken as read, it follows that a lower top rate of tax is a good measure. However, tax ‘competitiveness’ is not good for the country because, if you are not taxing the rich fairly, you end up taxing the poor unfairly.
What is more, the idea that high taxes stifle economic growth is not borne out by the data – a report in the United States found there was absolutely no correlation between the top rates of tax and economic success.
Then there is the claim that a higher rate of tax might push the very wealthy into avoiding or evading tax even more than some of them already do. This is in no way a decent justification for Labour to abandon the 50p tax policy. Let’s remember that in the 1950s and 1960s it hovered around 90 per cent. Usually if people do not abide by the law or if they find a way around it, a government would enforce it better, it doesn’t give up on it altogether. The same should apply to the top rate of tax, otherwise it is one rule for the rich and another for everyone else.
But, ultimately, this comes down fairness.
If the Labour party truly believes in tackling inequality, then it should be committed to raising the top rate of tax to 50p on a permanent basis. This policy is not about attacking the rich, or stifling so-called aspiration. Instead it is about recognising that inequality is a huge problem in this country and the 50p tax rate – the money from which would help fund public services – is one step in the right direction to addressing this.
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Maya Goodfellow is a staff writer at LabourList
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No
—Most leadership candidates have now conceded that Labour’s general election campaign sent a strong signal that we were anti-business. As a small business-owner, I know we had a decent programme to support businesses like mine, with a British investment bank and cuts to the small business rate. But what the public heard from us was that businesses, and wealthy businesspeople, should pay the price for the recession – in particular through our ‘millionaires’ tax’.
There is no doubt that increasing tax rates on millionaires was popular. A YouGov poll in 2013 found that 65 per cent of respondents thought increasing taxes on the wealthy was the ‘right thing to do’. At a time of recession, and with a deficit to clear, it was right to ask those with the broadest shoulders to help bear some of the burden. But there are three reasons why cleaving to the 50p rate for the 2020 manifesto is a bad idea.
First, there is no better signal that Labour wants to back success than to agree that those who fairly make money from business should not lose half of their next pound to the government. This debate often ignores that national insurance is levied in addition to the tax rate at this level. The current tax rate of 45p is still higher than all but a month of Labour’s time in office. Given that the Tories have not (yet) reduced it further, we can agree that the level is likely be working for both the Treasury and entrepreneurial people alike.
It is one thing to say that the structure of the market is not working fairly for everyone (which is true), it is another to say that individuals should be Labour’s cash cow. While the 50p tax rate had been allocated to help in the deficit reduction effort, put with the mansion tax and the bankers’ bonus, it builds a picture that successful people, not profit-making companies, will be Labour’s first call to pay for any new programme or idea. Moreover, a tax on people who earn £150,000 and over clearly is not just targeted at millionaires.
Second, while many agree taxes should increase on the rich, it was less obvious to people that Labour had the competence to be able to deliver the tax increase effectively. We can quibble about whether the original tax increase raised extra billions for the Treasury (an HMRC report in 2012 said that the 50p increase meant taxable income fell by £20bn).
What is clear is that the public had no faith that we would be able to both collect that money and then use the proceeds efficiently. Much better that we focus instead on finding ways of closing tax loopholes and stopping scoundrels taking massive unmerited bonuses than raising tax on many people who ‘have worked hard and done the right thing’.
Finally, in 2020 the political and economic landscape will have changed markedly. While we were still at the start of an economic recovery it made some sense to say that the wealthy should pay their way to help balance the books. If the economy continues to grow and the deficit falls, the 50p policy becomes a thinly disguised class war which goes against everything we need to do to appeal across national divisions. If we are to create a fairer society, wealth-creators and businesspeople need to feel like they are part of the project, not the fall guy for it.
Seats Labour needs to win can only be won back if voters feel we will take everyone with us in our quest for a better society.
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Victoria Groulef is former parliamentary candidate for Reading West and a small business-owner
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