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

Associate Recrutiment Consultant

£18000 - £23000 per annum + Uncapped OTE: SThree: SThree Group have been well ...

Trainee Recruitment Consultant

£18000 - £23000 per annum + OTE: SThree: Real Staffing Group is seeking Traine...

Year 6 Teacher (interventions)

£120 - £140 per day: Randstad Education Leeds: We have an exciting opportunity...

PMLD Teacher

Competitive: Randstad Education Manchester: SEN Teacher urgently required for ...

Day In a Page

Read Next
 

Letter from the Political Editor: Cameron's unexpected tax pledges give the Tories home advantage

Andrew Grice
President Barack Obama walks with U.S. Secret Service agents to Air Force One at Los Angeles International Airport in Los Angeles, Calif., May 8, 2014.  

Obama's Secret Service has become sloppy with its delusions of Hollywood grandeur

David Usborne
Italian couples fake UK divorce scam on an ‘industrial scale’

Welcome to Maidenhead, the divorce capital of... Italy

A look at the the legal tourists who exploited our liberal dissolution rules
Time to stop running: At the start of Yom Kippur and with anti-Semitism flourishing, one Jew can no longer ignore his identity

Time to stop running

At the start of Yom Kippur and with anti-Semitism flourishing, one Jew can no longer ignore his identity
Tom and Jerry cartoons now carry a 'racial prejudice' warning on Amazon

Tom and Jerry cartoons now carry a 'racial prejudice' warning on Amazon

The vintage series has often been criticised for racial stereotyping
An app for the amorous: Could Good2Go end disputes about sexual consent - without being a passion-killer?

An app for the amorous

Could Good2Go end disputes about sexual consent - without being a passion-killer?
Llansanffraid is now Llansantffraid. Welsh town changes its name, but can you spot the difference?

Llansanffraid is now Llansantffraid

Welsh town changes its name, but can you spot the difference?
Charlotte Riley: At the peak of her powers

Charlotte Riley: At the peak of her powers

After a few early missteps with Chekhov, her acting career has taken her to Hollywood. Next up is a role in the BBC’s gangster drama ‘Peaky Blinders’
She's having a laugh: Britain's female comedians have never had it so good

She's having a laugh

Britain's female comedians have never had it so good, says stand-up Natalie Haynes
Sistine Chapel to ‘sing’ with new LED lights designed to bring Michelangelo’s masterpiece out of the shadows

Let there be light

Sistine Chapel to ‘sing’ with new LEDs designed to bring Michelangelo’s masterpiece out of the shadows
Great British Bake Off, semi-final, review: Richard remains the baker to beat

Tensions rise in Bake Off's pastry week

Richard remains the baker to beat as Chetna begins to flake
Paris Fashion Week, spring/summer 2015: Time travel fashion at Louis Vuitton in Paris

A look to the future

It's time travel fashion at Louis Vuitton in Paris
The 10 best bedspreads

The 10 best bedspreads

Before you up the tog count on your duvet, add an extra layer and a room-changing piece to your bed this autumn
Arsenal vs Galatasaray: Five things we learnt from the Emirates

Arsenal vs Galatasaray

Five things we learnt from the Gunners' Champions League victory at the Emirates
Stuart Lancaster’s long-term deal makes sense – a rarity for a decision taken by the RFU

Lancaster’s long-term deal makes sense – a rarity for a decision taken by the RFU

This deal gives England a head-start to prepare for 2019 World Cup, says Chris Hewett
Ebola outbreak: The children orphaned by the virus – then rejected by surviving relatives over fear of infection

The children orphaned by Ebola...

... then rejected by surviving relatives over fear of infection
Pride: Are censors pandering to homophobia?

Are censors pandering to homophobia?

US film censors have ruled 'Pride' unfit for under-16s, though it contains no sex or violence