From the TUC

Will the rich pay more?

22 Apr 2009, by in Economics, Equality

It’s been disappointing to see the IFS claims that you can’t make the rich pay more by raising income tax rates taken quite so uncritically. Of course it’s true that the super-rich will continue to do all they can to avoid paying a fair level of tax, but that does not mean you should give up trying – simply that you need to get the tools right. As Richard Murphy says it means integrating anti-avoidance measures – as we do with the TUC’s minimum tax rates proposal.

You expect commentators on the right to repeat this – although it would be good to see the authors of all such pieces declare their own tax band. Already the Daily Express is shouting:

CHANCELLOR Alistair Darling said he would hammer Middle Britain with enormous tax rises today, as he revealed the shocking extent of Britain’s national debt.

It is more disappointing to see the BBC’s Stephanie Flanders saying:

You can’t raise the kind of money this government needs to raise by soaking the rich. There aren’t enough of them, and those that do exist tend to be very good at keeping the government’s hands off their cash. Taxing the rich makes for good politics but less effective economics.

But as the Compass YouGov poll found, there is big support for asking the most well-off pay a fairer share, particularly as so many of them did so well from the boom years.

The Chancellor probably wants us to think that he is being tough on the super-rich with a new 50 per cent tax rate on those earning more than £150,000,  limits on higher rate tax relief for pensions above £150,000 and ending personal allowances for those on more than £100,000.

It’s interesting to read Stephanie Flanders on this. She starts by thinking it looks like a soak-the-rich budget, but once she has had a chance to look at the figures it is clear that it is no more than a very-light-shower-for-the-rich budget. She finds:

  • The end of personal allowances for people earning more than £100k will raise a mere £180m by 2011-2.
  • The 50% top rate for people on more than £150k will raise somewhat more – about £1.8bn in 2011-12,
  • restricting the tax relief on pension contributions to 20% for people on more than £150k will deliver a measly £200m a year.

This is not insignificant, but it is nothing like the amount to be cut from public spending.

I would have hoped for something more radical, but while the sums to be raised are not that ambitious, perhaps the real significance is the breaking of the new Labour taboo on increasing taxes for the rich. But while the quiet majority will cheer these on, ministers will need to be braced for far more Daily Express style fake populism.

Over at the Fabian’s excellent Next Left Sunder finds that the proposals are already causing difficulties for the Conservatives by posing the dilemma of whether they want to be on the side of the super-rich or the rest.  Too many Labour budgets of the past have accommodated Conservative policies with initiatives such as inheritance tax cuts and the 10p tax rate in too-clever-by-half attempts to shoot Tory foxes. Such policies have either ended up as spectacular own goals or simply legitimised a non-progressive agenda. It must be better politics to create dilemmas for your opponents not confirm that they are right.

One Response to Will the rich pay more?

  1. The Budget: was it progressive? | ToUChstone blog: A public policy blog from the TUC
    Apr 22nd 2009, 10:52 pm

    […] allowance for those earning over £100,000 means the taboo on raising taxes for the wealthiest is well and truly buried (the funeral began with the Pre-budget Report, of course).  The higher income tax rate, in […]