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Explaining the 50p top tax rate

Posted on 28 April 2009 | 9:04am

I’m out at an event with Eddie Izzard later, one of a series the Labour-supporting entertainer is doing to help the Party.

And I’ve been thinking – how best to deal with questions about the 50p tax rate.

The first thing to say is that we, even more than the Tories, are the ones who should be pointing out that it is a breach of a manifesto commitment, making clear we did not want to go against the manifesto, and that we understand how serious that is. 

Politicians, contrary to what some may think of them, do not like to break promises. Also, the maintenance of Labour’s promises on income tax has been a very important part of our success, politically and economically.

The fact of the new top tax rate is therefore evidence of how serious the economic situation is. That too is best openly stated rather than understood. Governments have to make choices about where and how to raise money and, at times, where and how to cut. And to be fair to the public, they get that.

Rightly ministers want to highlight the help for the unemployed, the support for training, the continued commitment to invest through the recession, all the measures aimed at enabling Britain to emerge stronger when recovery comes. But all of the difficult decisions have to be constantly explained alongside.

The new top rate was bound to get disproportionate coverage in the national media, as all editors and most commentators will be on the new top rate, which means it requires more not less explanation, on economic grounds. Otherwise, as seems to have happened, people who threaten to leave the country because of having to pay higher tax are presented as patriotic heroes, driven away by a red in tooth and claw Labour government.

So part of the argument has to be that this is a long long way from Denis Healey’s threatened squeeze till the pips squeak. This is a global financial crisis, in which all countries, all businesses, all families are having to deal with some of the fall out in different ways. As part of the national response, everyone helping out must be part of a call to arms to help Britain through the crisis.

What we should not be doing is giving any sign whatever that somehow this is what Labour politics is all about. We regained electoral success by understanding that to meet our social  justice objectives, we had to  understand and appreciate enterprise too. Neither the banking crisis, nor the new top rate, changes that. The worst of business may have helped get the world into the crisis. But the best of business is going to have to help the world out of it. 

So our reaction to those threatening to leave Britain should not be ‘piss off to Switzerland then’, but that we understand there may be a link between tax rates and the desire to invest in the UK economy, which is why this should be seen not as an ideological shift but as a neccessary and difficult measure in extraordinary times, at the end of which we are determined to ensure Britain will emerge strong.

Finally, how to deal with questions about the future. The honest answer, when asked if we can be 100 per cent sure about growth forecasts and debt predictions, is No. Again, the public get that. They want a mix of confidence – signs that the government has done the best possible analysis based on all the information available – and  candour.

So in a nutshell ‘the new top rate is a manifesto breach, and nobody likes to break manifesto  promises. That we have done so is a sign of how extraordinary are these economic times. This is a measure to raise money, not a shift in our stance on enterprise, because business and enterprise are central to national recovery. It has to be seen in the round, with all the other measures we are taking to  try to lead Britain through the recession. These are uncertain times and we cannot guarantee success, but we believe this is the best response at this time to deal with the worst effects of a global crisis and its impact on Britain.’

I’ll let you know if Eddie nods or shakes his head; and address another day the issue of how I think we should deal with the Tory response.

  • Paul Allan

    “Also, the maintenance of Labour’s promises on income tax have been a very important part of our success, politically and economically.”
    Just what political and economic success would that be then? Name any!
    (By the way, shouldn’t that be “has been” as maintenance is singular?)

  • sas

    It is more disappointing aspect of the tax rate announcements is that the tax-freethreshold was not raised as well.

  • Malcolm Speed

    Part of the argument also has to be that even with the crisis as bad as it is, most people are still better off than they were under the last lot. There is a danger we allow the current situation to eradicate the fact that the Labour economic story is a good one. The crisis does not change that. I wish our ministers would stop being so defensive about it all

  • Janice

    I don’t agree we should be sympathetic to people threatening to go overseas. If their patriotism is dependent only on tax rates, then it is not even skin deep

  • AC

    Paul – thanks for the grammar check. Dreadful mistake. Duly corrected. Re economic success – the longest period of growth you and I can remember. Bank of England independence, helped deliver low inflation and low interest rates as promised. Economic management helping create record investment in public services. Govt showing eg via new Deal that govts can make a difference in job creation.
    politics – three election wins. Shifting of political landscale shown by Cameron having to pretend he is heir to Blair to have any chance of winning.
    Could go on but am running out for a meeting and if there is one thing I hate more than bad grammar it is being late. Thanks again.

  • maas101

    Given that the increased rate will only bring in a very small amount by the time those who will leave have left and the accountants of those who stay have been let loose on it, it seems strange to breach a manifesto promise.

    Unless of course it had nothing to do with raising revenue but was a political maneuver to try and paint the Tories as the ‘party of the rich’. Surely not, this government wouldn’t play with peoples lives and the economy just for their own advantage……

  • Simon Leonard

    Alastair,

    Ask Eddie Izzard if he’d run for London Mayor in 2012. The debates with Boris would be hilarious.

  • james

    I completely agree with you on the importance of recognising the breach of the manifesto pledge. I can’t understand why Ministers don’t seem to be able to see that and I think it will majorly come back and bite Labour on the backside in a years’ time – ie ‘why should we believe you after last time you ended up changing leader, putting up tax and fudging the european referendum?’

    But I also think Labour need to address this issue about scepticism over how much money it will raise – this is important because if the public believe those people who say it won’t raise anything significant, then they will feel that it’s a political sop to the left and therefore does in fact represent what Labour politics are now about.

    And on top of that a cast-iron guarantee that it won’t rise above 50% – don’t underestimate the cynicism now over the fact that it went from 45% to 50%, so what’s next etc.

  • Drypoint

    Malcolm, the budget has completely demolished Labour’s reputation for economic competence. It’s like claiming you’ve won a football match just because you were ahead at half time.

  • Jonathan Cook

    Gordon Brown has become an complete and utter embarrassment to the country.

    Can’t you or Peter do the decent thing and plant the old silver bullet in Brown’s forehead?

  • Wayne ODell

    Ali,
    Your blog is very interesting and i have thought a lot about it. But to me, this isnt just a broken manifesto promise its much more than that – its ripping up the ‘New’ Labour rule book and taking the party back years. To me, its a huge betrayal and however we spin it – its a massive slap in the face for anyone wanting to ‘make it’ Lets give those who do nothing and take away from those that do the most – its wrong. I am so dissillutioned with the party at the moment. It seems like a Iife time ago that i watched and celebrated when TB won the first time. This is a move back to the days of penalising free enterprise and it upsets to say that i no longer want to be part of it.

  • terry evans

    i hope eddie doesn’t mention Michael Caine. I did and didn’t get published

  • James

    The 50p rate is a diversion.

    The real issue is taxes are too high for EVERYONE, not just the top 1%. The real issue is to clean up the tax system, how to reduce the cost of collecting taxes, how to direct taxpayers money to those who need it most, how to reduce waste and inefficiency in the public sector.

    Explaining the 50p rate is an easy option. More difficult to explain why, after 12 years of Labour rule, we still have inefficient and poor quality services and layers upon layers of bureaucracy.

    Labour can’t talk about making every penny count as this would admit to 12 years of failure.

  • gary Enefer

    I don’t believe we should forget that labour did keep a lot of the pledges they made and improved the NHS and Education. My son is 17 and had a very good State Education thanks to TB and his government. 50p Tax is a good idea and the threshold is reasonable.

    With thanks
    gary enefer

  • Paul Marshall

    I would willingly pay 50 pence in the pound, provided you and Eddie Izzard wear each other’s clothes and make-up.

  • woolfie

    This is just one of a whole series of broken manifesto pledges, the biggest being the lack of a referendum on Lisbon Treaty.

    As someone else said, it’s not about the 50p tax rate ( anyone earning £150k + has an accountant that will get them out of paying most of it any way)it’s about the huge taxes we ALL pay. I don’t earn even a third of that, I’ve worked all my life and am nearing retirement, but GB stole my pension, I can’t get an NHS dentist for love nor money, I live in a rural area and need my 14 year old car but can’t afford to run it and you are totally joking if you think my bank will lend me any money to buy a new one.

    Sorry that is the end of me and Labour, unless we bring back TB

  • wyrdtimes@forengland.org

    Another Labour promise broken.

    What our vote on the EU Cons… sorry “treaty”?

    I want my vote.

  • Stuart

    I’m a tory, and I was amazed that the Personal Allowance wasn’t raised to £15K or even more. Take the low paid out of the income tax and benefits system and think about the incentives that arise as well as the hugely reduced admin costs. Some of the black market would disappear at a stroke. GDP would rise. VAT takings would rise. I would do this tomorrow.

    A far more honest approach than 50% + NI + VAT + car tax + TV tax + tax tax…

  • Alina Palimaru

    Alastair, very interesting analysis. Well said, these are extraordinary times which require extraordinary decisions.

    Excellent point on the fact that many other countries are implementing equally tough taxing plans for the wealthiest people (the 1% in the top of the income scale). Thus, except for maybe Africa, I am not sure where they could escape. (I hear real estate in Angola is going through the rough… here’s hint! 🙂 ).

    The Washington Post had a very interesting analysis of the British budget, and it looks like the revenue from these earners will be substantial and very welcome to support welfare programs. A real patriot doesn’t threaten to leave when times get tough. A real patriot stays and shoulders the burden alongside everyone else, wealthy or poor. However, the New York Times pointed out that the revenue may not be collected after all because most of these high earners will hire accountants to find legal loopholes and avoid paying the tax. This is a widespread practice in the United States, which is expected for a culture that values rapacity, greed and individual success at any possible cost there is (to the individual and to society). If those UK top-earners stoop to it as well, they’ll be purely pathetic.

    Here are some other excerpts from the WP article, since their positions and those of the interviewees coincide with mine.

    “The trouble for Lloyd Webber (whose wealth is estimated at $1.1 billion in the Sunday Times Rich List) and other well-heeled critics is that the tax increase is popular. A YouGov-Daily Telegraph poll found that 68 percent of Britons supported it, and a Populus poll in the Times newspaper found 57 percent in favor.”

    Anthony King, a professor of government at the University of Essex argues that “if the wealthy are basing their decision on whether to live in the country purely on taxation, people will start to wonder, ‘Who are these people, anyway?'”

    Richard Portes at the London Business School said he doubts there will be a “mass exodus” from Britain. “Any exodus will be a few loud-mouth people, and they catch the media’s attention,” he said, “but the fuss will peter out.”

    Finally, the New York Times remarked that “The British government’s deficit would not be exceptionally high by global standards, however. Total federal debt in the United States is projected to rise to around 70 percent of G.D.P. by 2011, according to estimates from the Congressional Budget Office, and Japan’s is threatening to exceed 200 percent.”

  • Elliott Burton

    But Alistair, it wont raise any money. It will lead to MORE tax avoidance, not less. The measures in the budget to close up loopholes that lead to tax avoidance amounting to £1 billion are made redundant by this tax rise. The rich will now only pay their accountants more to find new loopholes or just leave the country. I think you know this, but good attempt to put a positive spin on things. Are you back in the fold or what?

    http://www.thesocialmediaforum.org

  • Kenneth

    Reading the Blair Years – am working in Libya for six moths and your tome is filling in the quiet evenings! Insightful on all levels – but the fashion critiques of TB are best!

  • Dongbal McRumples

    Look at this poll even you laboury types are bailing, why dont you go and cast your vote AliC?

    http://www.labourhome.org/story/2009/4/28/82152/3125

  • Jane A

    I am few thousand light years from being affected by the 50% tax rise, but I don’t have an ideological problem with it.

    In difficult times I hope the government I voted for will be flexible, agile and responsive enough to review the policies set in place years ago and if they are no longer appropriate for the times we find ourselves in, move to make the necessary adjustments.

    That’s what we expect of them – to govern – and not to sit on their hands saying “Well, a while ago we said…so we can’t…”

    It’s not about broken promises per se – it’s about doing the right thing in difficult times. Inflexibility is the enemy of solution.

    And I am not being a hypocrite – despite it not applying, if me paying a bit more tax for a while fixed the problems of many others, why wouldn’t I? I would.

  • Alan Quinn

    Ally, the EU and the US should strive to stamp out tax havens. We could then use the money saved from the tax dodgers to get people into work.
    When the top earners get their millions in bonuses it’s because they deserve it because they’re supposedly good at their job according to them.
    It’s the same old sorry excuses when they have to take the medicine like the rest of us. Let them piss off to Switzerland.

  • keith bibby

    50% if over £150000 it’s the working class not the middle upper class that have paid the prise for this
    Tory! lot in labour clothing.

    Labour betrayed the working class of this country the minute they opened the boarders for the accession cheep 8 . Forcing down the wages of the poor

    And it’s the poor that will desert them at the poles

    The minimum wage as become the wage £228, for millions of ex labour voters
    Priced out of the rental market, no chance of competing with the mass inflow.
    Living 10 to a house

    But the ones now complaining of tax rises are the ones that have enjoyed the masses of cheep labour supplied by Tory tony and his trousering friends

    It’s the poor that have been squeezed till the pips squeak.
    No wonder so many of them have sort asylum in the incapacity benefit trap

  • Bar Bar of Oz

    “Shifting of political landscale shown by Cameron having to pretend he is heir to Blair to have any chance of winning.”

    That’s the nub of the problem isn’t it? Even after TB’
    s forced departure the wider electorate never saw Cameron as the heir to Blair until Gordon and the Brownites themselves anointed Cameron so. That was back in October 2007. Since then it has been the death of a thousand cuts with about half left to be taken.

  • CPW

    Re:Keith Bibby,

    Possibly the most eloquent piece of inarticulateness I have ever come across. Don’t mean to patronise, but it was almost Dickensian. Excellent, insightful and meant much more than it said. Sam Veller would be proud.

  • gary enefer

    Dear AC

    I have looked at your blog for two days only and am amazed at the variety of contributors. I love the way Jane A writes. I fear for Keith. It is ok to rant but there were so many mistakes (and he did write rather late) I wonder if it was tiredness , or the wine ,talking. I recommend you see you GP for a full check up Keith in case there is something wrong – I am sincere
    best wishes
    gary enefer

  • John Willman

    The 50p tax rate was a political move to try and embarrass the Conservatives – and nothing else. The Institute for Fiscal Studies calculates it will raise little or nothing or even lead to a net loss of revenue.

    And all this guff about patriotism is just that. Rich people can live anywhere they want (many of course aren’t British). It is good for the UK that they live here, employ people here and spend money here – all of which boosts national income and tax revenues.

    Denis Healey was derided for making the pips squeak, but at least he was honest about the need to put up taxes for everybody. They will have to rise to restore the public finances and ensure that the UK can continue to borrow the humungous amounts needed over the next 10 years. Taxing the rich – even if it yielded the revenue the government claims – is still a drop in the ocean. The sooner we get on with it, the better.

  • Jonathan

    Stuart’s idea of raising personal allowance and taking the low paid out of the tax net is an excellent one. At the moment, Mr Brown has given us an extraordinary bureaucracy that collects, tax sloshes it round the pipes a bit(with many leaks on the way) and recycles some of it back to the low paid in the form of tax credits.Even if it worked perfectly, this would be inefficient. But of course, run as it is by the State, it works much less than perfectly. There is fraud. There is also rank incompetence by HM Revenue & Customs who overpay credits massively and then can’t get the money back.

    Remember, this was one of Mr Brown’s big ideas. People told him at the time that it wouldn’t work, but our GB doesn’t really like dissenting views terribly much so the scheme went ahead anyway. No doubt the naysayers found themselves on the end of a MacBriding as well. Stuart’s idea is much better.

    As to the 50% rate, I can at least understand the link between high tax and good services. But this country now has Scandinavian rates of tax without the services to match. No, the taxpayer is being asked to foot the bill for Mr Brown’s incompetence. When times were good, Britain went on a massive borrowing boom all designed to con the electorate into thinking Labour could run the economy. Now it has all gone wrong and the Government waves the Union Jack and tells the wealthy that it is their patriotic duty to pay for these mistakes. What a load of balderdash.

    All Labour Governments end the same way: by messing up the economy. This one is no different, it has just been better at pulling the wool over our eyes. Goodbye Mr Brown. I won’t miss you.

  • Caroline Hett

    If the 50p tax rate is a measure to raise money and so pressing that it makes breaking a manifesto promise necessary, why is it not coming into force until a few days before Labour get voted out of office by the electorate?

  • Jane A

    @gary enefer – you’ve quite made my day, thank you.

  • Simon

    Dear Alastair

    I think the new 50% tax rate if absolutely appalling. You, however, are devastatingly good looking,

    All the best

    S

  • Adrian Wrigley

    Raising taxes on income at this time is absolutely perplexing. Income Tax is one of several taxes on economic production (the others being Corporation Tax, National Insurance and VAT). These are the taxes which are part of the cause of our economic woes.

    A superior alternative would be to have increased the Council Tax on Band G and H properties. Currently they attract only double the average, in spite of being owned predominantly by very wealthy people. If the owners can’t afford the Council Tax, they should move. If they are too old and frail to move, it should become a charge on the house.

    The Government is trying to tax “the reach” while missing the target by a wide margin. Cutting and then eliminating taxes on production would be a bold way to revive the economy. All the revenue the Government needs can be obtained through Land Value Taxation (LVT). It was once a key part of Labour’s economic policy, and should be restored.

    Eliminating taxes on production would be simpler, cheaper and fairer. It would stimulate the economy, and eliminate this ridiculous bitching about so called “tax havens”. It is what economist and politicians from across the political spectrum have been advocating for centuries (Confucius, Turgot, Adam Smith, David Ricardo, Henry George, Leo Tolstoy, Sun Yat Sen, Winston Churchill, Bertrand Russell, Milton Friedman).

    They only reason I can see for taxing incomes and production is ignorance of basic economics. For a primer on the topic, I suggest reading “Progress and Poverty” by Henry George (1879(. He explains housing bubbles, recessions and depressions, poverty.