I recently wrote a blog about George Osborne’s apparently schizophrenic attitude to taxation. He seems to know that high tax rates are damaging, yet he still talks of delaying cuts in the Death Tax “because the money is needed for something else”. But high tax rates won’t deliver the extra revenue he needs.
I remarked that Osborne probably knows that the 45% top rate of income tax is actually bad for the economy, and losing the Treasury some revenue. But he lacks the guts to say so. He’s terrified of Ed Balls at the Dispatch Box, accusing him of “Tory tax cuts for the Rich”. So let me offer George a little tutorial in how he should handle it. It might go like this:
GO: I’ll be reducing the top rate of income tax from the current 45% to 40%, the level it was at before Labour decided to make a punitive increase. They did this more as a tactical device in an attempt to embarrass the next government, rather than to do any good to the country or the economy.
EB: There you go again, Chancellor, cutting welfare for the poor while you give the rich a hand-out of £10 billion (or whatever figure he’s using this week)
GO: You’re mistaken, Ed. I’m not giving any hand-out to the rich. On the contrary, I shall be taking more revenue from higher earners, and we’ll therefore have more in the kitty to support the very social programmes that your side of the House is demanding.
EB: But … but … (splutter splutter) … you just said you would cut the top rate for higher earners from 45% to 40%.
GO: Exactly, Ed. But there is wealth of evidence that high personal tax rates deter investors, including foreign investors; discourage enterprise; drive entrepreneurs and job-creators offshore; slow growth and reduce prosperity. Beyond a certain level, raising tax rates actually reduces revenue, while reducing tax rates increases revenue. If you don’t know that, Ed, then I’m afraid you have no business being Shadow Chancellor, and no right to aspire to Number Eleven. By raising tax rates on high earners, you not only took money from the better-off. You also took jobs and opportunities away from the less well-off — the very people that Labour is supposed to stand up for. We’re going to put that right.