Cameron on the 50p tax
David Cameron is remarkably coy about the new 50p tax rate in the Spectator. He seems to be saying, “I’m not falling into the Labour trap of giving a clear commitment to repeal it, but I’m going to leave enough wiggle room to be able to repeal it after an election.” The Guardian is right to headline this “Cameron to scrap 50p tax if it proves a failure.”
The argument against the 50p tax rate is put by Fraser Nelson in the interview:
… a tax that will, according to the Institute of Fiscal Studies, lose the Exchequer about £800 million a year as the richest move themselves (or their money) elsewhere. Why on earth, I ask him, does he think this tax will raise revenue when all independent research suggests otherwise?”
But there are two problems with this.
First, while the IFS are surely right that the super-rich will try and avoid paying this tax, should we simply run up the white flag and therefore give up trying to make them pay a fairer level of tax? The response should be to crack down on the tax avoidance methods they use. They may not be entirely successful, but it cannot be the case that it is impossible to raise more tax from the super-rich which seems to be Fraser Nelson’s premise.
If true, that would be outrageous. The right response to this would be anger – not a shrugging of the shoulders.
Second, even if introducing the new tax (without taking other anti tax-avoidance measures) does not raise that much money because it encourages tax avoidance, it does not follow that repealing it would have little or no effect. This would require those who had adopted additional tax avoidance tactics to stop using them and go back to paying higher rate tax on more of their earnings.
I don’t think so.