Why are we so scared to tax incomes over £150,000? Currently, Britain levies a paltry 45% above this level, affecting 236,000 people nationwide and 29.7% of HMRC revenues. Ed Balls – the shadow chancellor – wants to cautiously raise this to 50%, but surely we need to go further?
There is fierce discussion as to how much this modest proposal would actually raise. Perhaps the best evidence we have at present is that produced by HMRC, and signed off by the Office for Budget Responsibility, in 2012. This suggested that cutting the 50p rate to 45p could reduce revenues by about £3.5 billion in 2015–16 – if there was no change in behaviour by affected individuals.
To set this current debate in context, we should remember that, on coming to power in 1979, Margaret Thatcher’s government slashed the top rate of income tax from 83% to 60%. This was reduced again in 1988 to 40%, and the “higher rate” has remained at the same level ever since. Then, in April 2010 Labour’s “additional rate” came into force, meaning anyone earning more than £150,000 a year had to pay 50p in every pound of income over that amount. The current coalition government kept the additional rate system, but reduced the amount to 45p from April 2013. This trend is reflected in other European countries.
Basically, once upon a time, there used to be a consensus that those who earned six figure salaries actually contributed the majority of their income to making Britain a better, fairer place to live. There was a realisation that living alone in luxury is wrong when your neighbours in another part of town are struggling to feed themselves. Individual contentment depends on community well-being. How can I celebrate with champagne and caviar when others are scarping an existence on the dregs I throw away?
We also need to examine what happens in more progressive countries. Denmark and Finland both have top rates of income tax set at approximately 60%, whilst Spain and Holland opt for 52%. If Britain matched Denmark in terms of taxation, then we could raise over £10 billion more, which is badly needed to reduce the deficit and improve public services.
What would be the impact for someone earning (say) £200,000 p/a? Well, they would pay £7500 more in tax, but still take home a very respectable £109,141. This modest increase to the top tier of tax would not impoverish anyone (and, in many case, would hardly be noticed by the payee) but could make a huge difference to the nation.
On a similar note, we also need to tackle top wages in the public sector. You should only be working to directly serve society if you have higher motives than funding a lavish lifestyle. If you’re only in it for the money, then what are you doing heading-up the NHS, or directing the British transportation network? Surely, the best incentive for accepting a job with more responsibility is the opportunity to make a bigger impact and better help an increasing number of people? If “top talent” takes-off to sunnier climes, then they’re free to go. Clearly, they don’t love this country or care for their fellow-citizens. How much money would we need to pay them to stay?