Welcome to the new Independent website. We hope you enjoy it and we value your feedback. Please contact us here.

Business Comment

David Prosser: The counter arguments on taxes for the rich


Outlook Two thoughts on the 50p tax rate argument. The first is that the data (for which I am indebted to the economist Chris Dillow) does not appear to support the arguments of the eminences who seem to think there is no bigger challenge for the UK economy today than cutting income taxes for the rich.

If our high tax rates really are so incompatible with attracting foreign investment and retaining talented workers, how come foreign investment over the past year has been no lower than its average over the previous decade – and how come the number of workers leaving the UK actually fell last year? Note, too, that the 2 per cent average rate of economic growth over the 22 years in which the highest rate of tax in the UK was 40 per cent was well below the 2.5 per cent achieved over the previous 22 years, when the top rate of tax went as high as 83 per cent.

Second, if you don't like the data, try this argument. It is true that lower tax rates may incentivise people to work harder. But they also increase disposable income, which encourages them to play harder too. Many economists believe the gains and losses in productivity may even cancel each other out.