Mary Dejevsky: Top-rate taxpayers should stop whingeing and cough up

The arguments the rich avoid are those of fairness and morality
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The Independent Online

It's almost two weeks now since the Budget, but still the whingeing goes on. Any commentary that has not been drowned out by MPs' expenses, Gurkhas or swine flu returns to one topic and one topic alone: the 50 per cent tax rate and other penalties for the highest earners.

Immediately after the Chancellor's speech the aggrieved rich were just one voice in the chorus. The others, mostly from the left, complained that there was nothing/very little/not enough for the poor or the pensioners or savers. They were right, there wasn't much – but then, in such parlous times, what did anyone expect?

Less remarked upon was that for the vast majority of earners, the Budget was essentially a non-event. There were no emergency revenue-raising measures that would really have hurt, such as a rise in the basic rate of income tax or new punitive "sin" taxes, only the routine pence on alcohol, tobacco and petrol. The last thing the Chancellor wanted to do was restrict spending.

There was even a pleasant surprise for most of today's higher-rate taxpayers – the 3.5 million or so who earn more than £37,400 but less than £150,000. Contrary to rumours that he would reduce tax relief on pension contributions, the Chancellor left their higher relief in place. This group makes up 10 per cent of income- tax payers. Only 1 per cent of the population earns more than this – 350,000 out of an income-tax paying population of 30.6 million.

In other words, it is only a very, very small number of people who were stung by this Budget and, as a proportion of their income, they were barely pricked. But my goodness are they making the rest of the population know it! To believe them, and their well-paid advocates, the engine of the country's wealth is under assault; there will be a flight of capital to rival Russia's.

Let's look at what these 350,000 really stand to lose. They will pay an extra 10 per cent in tax on the top part of their salary and they will have less incentive to pile money into pensions. Along with those on more than £100,000 – still a tiny fraction of the population – they also face their personal tax-free allowance being phased out. None of this, relative to their rewards, adds up to a huge loss. Remember, we're not talking about 50 per cent of £150,000 but 50 per cent of earnings above that.

Perhaps wisely, the arguments they have conspicuously avoided are those of fairness or morality (though the withdrawal of the personal tax allowance for high-earners poses a real question of fairness). They concentrate instead on competitiveness and practicality, issues that neatly circumvent ideology.

Competitiveness relates to how Britain's leading industries, notably finance, will attract and retain the brightest and the best. Practicality comes up more often, perhaps because competitiveness prompts the riposte: was it not the highest fliers who helped precipitate the financial collapse? And practicality boils down to the warning that higher tax rates invariably bring in less revenue than more. At this level, it is said, paying tax is a choice rather than an obligation.

For any government to accept this argument, though, is pure defeatism. If loopholes exist that make illegal tax evasion into legal tax avoidance, why are they not being closed? Has the new tax-haven transparency already been written off as ineffective?

And what of spreading the net? The supposedly low-tax United States – which is nothing of the sort, but that's another story – subjects its citizens to global taxation. Why don't we? Let the top 1 per cent decide whether the pluses of the United Kingdom outweigh the new disadvantages. If they don't, it may not be taxes, but poor services or unsafe streets that turn them away.

As for competitiveness, bring it on! For a decade, Britain has had some of the most highly-paid managers outside the United States, down to relatively low levels of responsibility. A UK salary attracting tax at 50 per cent, when combined with generous holidays, world-class private education and the English language may still make for a superior package than a lower tax rate elsewhere. You earn your money and you take your choice.

But the £150k class have a last, more insidious, weapon in their armoury. If we go, they say, it is not we big, rich, mobile people who will suffer – we'll be gone – but you little people who depend on us for your jobs and on our taxes for your public services. Anything that hurts us will hurt you more.

Just think for a moment, though. If that is really so, why are they making such a fuss? Don't be seduced by the siren voices of someone else's self-interest.