Leading article: A lever that the Chancellor would be unwise to pull

However it is dressed up, a tax cut for the wealthy is still a tax cut for the wealthy

Share
Related Topics

The Conservatives are preparing a move on tax cuts. As we report today, George Osborne is examining the case for lowering the top income tax rate from 50p to 45p, which would partially reverse the rise enacted by Alistair Darling in 2009.

The macroeconomic justification for reducing marginal tax rates on high incomes is a familiar one. It is argued that such tax cuts pay for themselves because they end up bringing in more revenue than higher rates. But the evidence base supporting the so-called "Laffer curve" is rather meagre.

It is notable, too, that adherents of this economic creed confidently predicted that Labour's 50p tax rate would not bring in any new revenues because the rich would find ways to avoid paying the levy. But, in fact, Labour's tax rise does seem to have successfully boosted tax revenues over the past two years. If there is a marginal rate at which taxation becomes self-defeating, we do not appear to have reached it yet.

And if the Coalition wishes to give the economy a boost through a tax cut, a reversal of its own rise in the VAT rate would be more effective. Reducing the top rate of income tax would benefit some 300,000 people. A cut in VAT would put money in the pocket of almost every adult in the country through cheaper fuel and energy bills.

The political logic of the move is just as dubious. Within the Conservatives, of course, this tax cut would be wildly popular. The Tories have always detested the 50p rate. The London Mayor, Boris Johnson, called for its abolition after disappointing growth figures last week. Mr Osborne does not want his expected future leadership rival to be able to present himself as the champion of lower taxes.

Yet Mr Osborne has more to worry about than the ambitions of his Tory colleagues. The Chancellor's Liberal Democrat coalition partners are trenchantly opposed to any reduction in the 50p tax rate at the moment. At the weekend, the Chief Secretary to the Treasury, Danny Alexander, argued that those calling for such a move are living in "cloud cuckoo land". The Business Secretary, Vince Cable, called any reduction "politically inconceivable".

The signs are that Mr Osborne would attempt to dress up any reduction in the top rate as "tax simplification" and to point out that the top marginal rate of tax will still be 58p in the pound when national insurance is included. Yet a tax cut for the wealthy is still a tax cut for the wealthy.

There is nothing inherently virtuous about high marginal income tax rates. And if the public finances were in robust health there might be a case for bringing them down. Yet that is not where we are. Mr Osborne has embarked on a programme of deep spending cuts. The vast majority of people are experiencing the most severe squeeze on their standards of living since the 1920s. There are close to one million young people out of work.

And in this context of widespread pain, Mr Osborne is apparently considering cutting the tax bill of some of the wealthiest people in Britain for a questionable wider economic benefit. The Chancellor should think very hard before reaching for this lever. Reducing the 50p tax rate would be bad politics and bad economics.

React Now

Latest stories from i100
iJobs Job Widget
iJobs General

Tradewind Recruitment: PMLD Teacher

Negotiable: Tradewind Recruitment: PMLD Teacher A specialist primary school i...

Recruitment Genius: Online Media Sales Trainee

£15000 - £30000 per annum: Recruitment Genius: Now our rapidly expanding and A...

Recruitment Genius: Public House Manager / Management Couples

£15000 - £20000 per annum: Recruitment Genius: Are you passionate about great ...

Recruitment Genius: Production Planner

£20000 - £30000 per annum: Recruitment Genius: This fast growing reinforcing s...

Day In a Page

 

Political satire is funny, but it also causes cynicism and apathy

Yasmin Alibhai Brown
As in 1942, Germany must show restraint over Greece

As in 1942, Germany must show restraint over Greece

Mussolini tried to warn his ally of the danger of bringing the country to its knees. So should we, says Patrick Cockburn
Britain's widening poverty gap should be causing outrage at the start of the election campaign

The short stroll that should be our walk of shame

Courting the global elite has failed to benefit Britain, as the vast disparity in wealth on display in the capital shows
Homeless Veterans appeal: The rise of the working poor: when having a job cannot prevent poverty

Homeless Veterans appeal

The rise of the working poor: when having a job cannot prevent poverty
Prince Charles the saviour of the nation? A new book highlights concerns about how political he will be when he eventually becomes king

Prince Charles the saviour of the nation?

A new book highlights concerns about how political he will be when he eventually becomes king
How books can defeat Isis: Patrick Cockburn was able to update his agenda-setting 'The Rise of Islamic State' while under attack in Baghdad

How books can defeat Isis

Patrick Cockburn was able to update his agenda-setting 'The Rise of Islamic State' while under attack in Baghdad
Judith Hackitt: The myths of elf 'n' safety

Judith Hackitt: The myths of elf 'n' safety

She may be in charge of minimising our risks of injury, but the chair of the Health and Safety Executive still wants children to be able to hurt themselves
The open loathing between Barack Obama and Benjamin Netanyahu just got worse

The open loathing between Obama and Netanyahu just got worse

The Israeli PM's relationship with the Obama has always been chilly, but going over the President's head on Iran will do him no favours, says Rupert Cornwell
French chefs get 'le huff' as nation slips down global cuisine rankings

French chefs get 'le huff' as nation slips down global cuisine rankings

Fury at British best restaurants survey sees French magazine produce a rival list
Star choreographer Matthew Bourne gives young carers a chance to perform at Sadler's Wells

Young carers to make dance debut

What happened when superstar choreographer Matthew Bourne encouraged 27 teenage carers to think about themselves for once?
Design Council's 70th anniversary: Four of the most intriguing prototypes from Ones to Watch

Design Council's 70th anniversary

Four of the most intriguing prototypes from Ones to Watch
Dame Harriet Walter: The actress on learning what it is to age, plastic surgery, and her unease at being honoured by the establishment

Dame Harriet Walter interview

The actress on learning what it is to age, plastic surgery, and her unease at being honoured by the establishment
Art should not be a slave to the ideas driving it

Art should not be a slave to the ideas driving it

Critics of Tom Stoppard's new play seem to agree that cerebral can never trump character, says DJ Taylor
Bill Granger recipes: Our chef's winter salads will make you feel energised through February

Bill Granger's winter salads

Salads aren't just a bit on the side, says our chef - their crunch, colour and natural goodness are perfect for a midwinter pick-me-up
England vs Wales: Cool head George Ford ready to put out dragon fire

George Ford: Cool head ready to put out dragon fire

No 10’s calmness under pressure will be key for England in Cardiff
Michael Calvin: Time for Old Firm to put aside bigotry and forge new links

Michael Calvin's Last Word

Time for Old Firm to put aside bigotry and forge new links