Tuesday 29 January 2019 7:19 am

DEBATE: With the top taxpayers revealed, is there a case for lowering the highest rate of income tax?

With the top taxpayers revealed, is there a case for lowering the highest rate of income tax?

Kate Andrews, associate director at the Institute of Economic Affairs, says YES.

With the tax burden at a 50-year high, there is almost always a case to be made for lowering whichever tax is up for discussion. This certainly applies to income tax, at both ends of the spectrum.

Far from getting a free ride, Britain’s highest earners are contributing overwhelmingly to the country’s public services. The tax burden on the rich has trebled since the 1970s, as the top one per cent of earners will have contributed roughly 28 per cent of all income paid to the Treasury last year.


That said, if I could slash any tax tomorrow, the top rate of income would not be first my list. Removing burdens felt by those on low incomes – through reforming income tax, sin taxes, corporation tax, and others – is my top priority.

But that shouldn’t rule out a wider discussion about reining in spending and tackling the UK’s looming debt, so that in the long run, the tax burden can be relieved for everyone.

Alfie Stirling, head of economics at the New Economics Foundation, says NO.

The latest theory and evidence indicates that the top rates of tax should be higher, not lower.

High tax rates help the economy, with studies suggesting that the most efficient marginal rate for top earners is around 73 per cent. How much you keep from a further £1 in earnings is worth less once you’re already a millionaire, compared to the incentive of winning the World Cup as a footballer or the commercial space race as a chief executive. Conversely, low tax rates encourage competition in salary, using money that could otherwise have been invested productively.

A more equal society is also a good thing in itself. Lower wealth inequality has been regularly linked with greater happiness overall – including among the richest themselves. Inequality can also skew democracy: the richer the super-rich are, the more able they are to influence debates – such as those on tax – in parliament or in the media.

For the sake of our economy and society, the wealthiest should be paying more tax, not less.

City A.M.'s opinion pages are a place for thought-provoking views and debate. These views are not necessarily shared by City A.M.

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