THE debate about the 50p tax swirls on, but there is only one question that really matters: does it work? Does it actually raise any money for the Treasury, that is?
Opinion polls show that the public only supports the tax on the grounds that it raises money; if it doesn’t, then the majority are happy to scrap it.
So the report yesterday from the Institute for Fiscal Studies, by Nobel-laureate Sir James Mirrlees, is game-changing.
It is the best evidence we have, and it concludes: “According to these estimates, the introduction of the 50 per cent rate would actually reduce revenue.” The IFS thinks that it costs the Treasury approximately £500m a year.
This will be no surprise to students of the Laffer curve, which suggests that above about 40p in the pound, the more you raise tax rates, the less revenue you get.
This turns all the arguments about the 50p tax upside down. The question isn’t whether we can afford to get rid of it, but can we afford to keep it? How many public sector jobs are we having to cut in order to satisfy our lust to punish the rich? Why should those on lower incomes pay higher taxes to make up the shortfall?
Or put it another way – if the government scraps the 50p tax, it could use the money raised to lift more low earners out of tax altogether. And at the same time, it would give a boost to the economy. Win, win, win – who could possibly argue against that?
Quite a few – but with increasingly emotive irrationality. Some say we need the tax to bash the bankers, but more than three quarters of those who pay the tax have nothing to do with financial services.
We hear that the rich in the US and France want to pay more tax, and so should the rich here.
But I suspect that if Warren Buffet was paying tax at a UK rate of 50 per cent rather than the US rate of 35 per cent he would be a little less saintly.
The implosion of the economic arguments in favour of the tax show that what is really behind it is what brought Britain to the brink in the 1970s – the politics of envy. It has made a comeback, which is bad for us all.
If Britain is to have a successful future, we must celebrate success – not seek to punish it.
Anthony Browne is former director of Policy Exchange