Taxation

There will probably never be a tax system that pleases everyone. Redistributive taxation, welcomed by social democrats, is often a source of anger for businessmen and high earners, who threaten with the customary argument of seeking pastures abroad. Low taxation evokes a sense of entrepreneurialism and pro-business in the City, but in turn antagonises those at the lower end of the income threshold, who may lash out with cries of politicians “looking after their own”. Low taxation in boom periods often buries down this argument, as unemployment decreases and so-called ‘all round prosperity’ is created. However, in these austere times, the issue of taxation is now more important than ever, and typically divisive in political circles and beyond.

I am not an economist. I profess ignorance on the matter, and confess that the content of this essay may be more idealistic than plausible; nevertheless taxation is often a matter of politics as well as economics (perhaps even more so), and I will do my best to be credible. The current top rate of tax of 50p in the pound was introduced by Chancellor Alistair Darling in 2008, as an attempt at increasing revenue during the global economic crisis, as well as recession in the United Kingdom. It has sparked bitter debate ever since. The desirable aim of the Conservatives is to cut it, with current Chancellor George Osbourne calling it “uncompetitive”, whilst the likes of Boris Johnson argue that it raises little, and drives away business and entrepreneurs. On the other hand, Liberal Democrat (and Chief Secretary to the Treasury) Danny Alexander declares that people wishing for its demise are “living in cloud cuckoo land”, and fellow Liberal Democrat (and potential future leader) Tim Farron calling it “phenomenally immoral”, with it sending “an appalling message to the overwhelming majority of hard-working people in this country”. A commission has been set up to investigate just how much the 50% rate raises. Ed Miliband has previously suggesting keeping the tax permanent as a symbol of fairness.

It is mainly due to a symbol of fairness that I am in favour of keeping the 50p rate, for now. With millions struggling and unemployment raising, I cannot see how cutting income tax for those earning the most can be a priority. I don’t buy in to the belief that cutting tax burdens for those at the top will somehow filter down prosperity to those at the bottom, or as Bill Clinton calls it-“trickled down economics”. George Osbourne’s “we’re all in this together” message would certainly sound hollow. As well as symbolism, it is important to look at the facts, too. Firstly, the 50p rate only applies to those earning above £150,000 per year. Secondly, people earning above this figure do not have half of their earnings disappear in tax; taxation is banded, with different rates applied to different thresholds*. Thirdly, the tax only affects around 320,000 people; there are 60 million others to consider.

I am not a unilateral supporter of the 50p rate. I don’t necessarily see it as a priority to keep permanently, as Ed Miliband does. As a social democrat, it is desirable, but as things stand in the UK you will be hindered in an attempt to win a General Election if you explicitly support a permanent 50p rate. Nevertheless, I strongly believe that the tax should remain throughout this parliament (to 2015). I will observe with interest the finalised figures of revenue from the commission, but cutting the rate is not justifiable in this parliament. I agree with Nick Clegg’s view that “those with the broadest shoulders should bear the heaviest burden”, but believe that the burden is not strongly felt by those in the 50p band. As Vince Cable said at the Liberal Democrat Autumn Conference, it is hard to believe that business, revenue and economic competence will suddenly flood back to the UK once the tax is abolished. For political reasons, Osborne will not want unfunded tax cuts despite the temptation of ‘sweetners’, especially as he is currently deriding Labour for supposedly promising unfunded agendas such as a cut in VAT. Furthermore, with deficit reduction a priority of the Government, now is not the time to cut the 50p tax rate. It should also not be a priority once the economy improves.

I believe a taxation priority, both now and in safer economic climes, is the raising of the income tax threshold at the bottom. I applaud the Liberal Democrats for implementing their core manifesto pledge of raising the income tax threshold to £10,000. Sacrifices were made in the Coalition Agreement, but this policy had to be a priority. A million people have already been raised out of income tax altogether. But I would go further. I have an idealistic goal, one which I would love to be implemented one day; raising the income tax threshold to £15,000. I make no bones about this; I accept that such a plan is not financially viable now. Raising the threshold to £10,000 is estimated to cost the Government £17 billion. However, it would be the mark of a Government to implement such a proposal in times of prosperity; the Labour Party could reclaim the social justice agenda with such a move, and with the Liberal Democrats supposedly aiming higher for a threshold of £12,500, they could claim it too. Such a policy would not be pursued by the Conservative Party. A threshold of £15,000 would strongly reward hard work, long hours and dedication from the millions of Britons who form part of Nick Clegg’s “alarm clock Britain”. I know from my own family and friends that such jobs as Teaching Assistants, Nurses and many more professions work their socks off; they work long hours, are wholly dedicated to their cause, get up early in the morning, and they have mouths to feed. All of this is often with scant reward and recognition. Such a policy would therefore reward these valiant endeavours, and also increase the popularity and prestige of these underrated yet vital professions. A great deal of people earning above the threshold would also receive a substantial tax cut; the likes of postgraduates and apprentices would be able to kick-start their fledgling career. From an economic point of view (budding economists can feel free to prove me wrong here!), spending power would be increased, alleviating fears of a contraction in the economy. The cost of living, with mortgage/rent payments and utilities, would also be eased.

I know the above policy sounds unachievable. I confess that it would cost vast sums of money, and would be difficult to implement, and it is a policy that I cannot envisage at this time. That should not make it impossible. It is a cause worth pursuing; one which I believe would transform the social justice agenda, and improve standards of living to unprecedented degrees. Whatever my political allegiance, I hope raising the income tax threshold to £15,000 can be respected now, and one day realised. I’d be stretching the bounds of idealism further still by suggesting that cutting tax on “the squeezed middle” could also be implemented as the next step (Ed Miliband defines this as those earning above and below £26,000), but if there was only a place for pragmatism and realism in politics, then I would find very little interest in the subject. Or I could become a Conservative.

-Ben

*

Income Tax rates and taxable bands
Rate	2009-10	2010-11	2011-12
Starting rate for savings: 10%*	£0-£2,440	£0-£2,440	£0-£2,560
Basic rate: 20%	£0-£37,400	£0-£37,400	£0-£35,000
Higher rate: 40%	Over £37,400	£37,401-£150,000	£35,001-£150,000
Additional rate: 50%	Not applicable	Over £150,000	Over £150,000