Saturday, March 21, 2009

Boris Is Right to Oppose 45p Tax Hike

"It sends out a signal to people who create wealth, people who are energetic... can generate new industries or drive large enterprises of one kind or another... that we want to take more of their proceeds away than before. It is a deterrent to enterprise."
That was Boris Johnson on the 45p tax rate on ANY QUESTIONS last night. I couldn't agree more. The thing that I can't get over is that if Labour hadn't announced that tax for top rate payers would go up to 45p, I just can't seriously imagine George Osborne would have come up with the proposal himself. If he needed to find £2 billion he would have found it elsewhere. And therein lies the rub. Will it actually raise anywhere near that sum? Many economists believe that a rise of this sort may in fact do nothing of the sort. When this tax rise was first announced, I wrote...
This measure was nothing to do with economics, it was all to do with politics - class politics. So it's quite right that the response is political too. And the response has been perfect. "Reversing this would not be a priority" is what has been said by Tory spokesmen. Which says everything and at the same time, says nothing. Why should it? Because at the moment, there is nothing to reverse.

It is a profoundly unConservative thing to approve of class based tax increases. No Conservative I know of would do such a thing. There may well have to be tax increases in the future - Gordon Brown's economic chaos has almost made that a racing certainty. None of us know what the situation will be like in 2011, so why the Conservatives should have to give any response to the 45p rate at all is beyond me.

What I do not understand is the logic of moving away from this position. If you need to raise revenue from top earners why stop at a 5p rise? Hasn't the position significantly worsened since November? Using the logic of the argument, you could easily make the case for a 50p rate. Indeed, I can't quite understand why the LibDems have been so quiet on this. Didn't that used to be their policy?

Tim Montgomerie wrote a stinging piece on ConservativeHome yesterday afternoon attacking George Osborne...
We are told by the Tory leadership that it's too early to say what a Conservative government will do on public spending but it's not - apparently - too early to say we'll accept increases in taxation. That inconsistency betrays the party leadership's instinct to keep both public spending and taxes at Labour's relatively high levels - an instinct evident in the Tories' 2007 decision to match Labour on public spending increases.
The focus should now be on how to curb spending. I don't expect to hear specifics on spending cuts - which there will have to be - but neither do I expect to hear specifics about tax rises. We're more than a year away from an election. Why be specific on these things at this stage in the cycle, when there is nothing to be gained by it? Yes, be honest about the situation the country is in, yes, give an indication of where you are heading in policy terms, but to commit to a 5p tax rise in April 2011 is not a sensible place to be.

I accept that George Osborne has left himself some wriggle room by using the phrase "difficult to avoid" but this whole debate was one which we didn't need to have.

I continue to believe that it is lower taxes which stimulate incentives and economic growth, not tax rises - and I think that is particularly true for top rate payers. The mantra all along has from the Conservatives has been for "flatter and lower taxes" This 5p rise meets neither aspiration.

Being honest with people about the state we are in is a good thing, and I am delighted George is taking far more about spending restraint, but it's about time he met with the Taxpayers' Alliance and learned a bit more about the negative effects of increasing top rate taxes. I'm sure they would be happy to provide the data.

38 comments:

Domesday said...

George Osborne needs to backtrack on his comments on the 45p tax rate and backtrack now. Conservatives believe that high rates of personal taxation reduce not increase the tax take. That was Thatcher's line and it was true. Osborne needs to make this case. This will be a totemic issue. The leadership may be saying 'oh well, our voters won't like it but they'll still have to vote for us.' No they won't. This is a sufficiently totemic issue to make Tories sit at home.

Thatsnews said...

But there's so much that Mr Brown could do in order to help the economy. A scrappage scheme, for example.
Growing call for scrappage scheme in UK to help economy

The scrappage scheme in Germany is doing very well, and... oh... I see!

Moving on from Fawlty Towers Gordon's new meme is not: "Don't mention the war!" It is "Don't mention the Germans!" And beware of low-flying Nokias.

Sixxstring90 said...

I may not be able to bring myself to vote for the Conservative Party is they commit to this punitive tax rise. Labour only proposed it as a piece of meat for the cannibalistic hard left of their party

Ian said...

This is the scale of the deficit Labour has put Britain in. The budget needs balancing as soon as possible in order to make some in roads paying off Labour's debt.

It is not possible to make £70-80bn worth of cuts in one budget. You would only succeed in leaving front line services short of cash because the bureaucracy would still take its cut out before the money got to the front line. You have to gently scale down spending to give it time to adjust.

Unfortunately, doing that means it'll take longer to balance the budget - time we barely have - and so increased taxation is the only other option. If Tories increase taxation though, it should come with a plan to undo the rise in a few years (e.g. 45% top band, but reduce that by 1% per year so that is will be back to 40% at the end of the first term).

If anyone thought that coming out of the recession would be painless, think again.

trevorsden said...

I am a right wing conservative. I am in favour of lower taxes af flatter taxes - ultimately it will increase the tax take. Fine.

But we are in a mess and quite frankly - right now - I do not give a toss about people on £150,000+ a year.

We have a massive debt mountain to pay off. In case there is anybody out there who is blind deaf and dumb (or as Obama might say 'qualify for the Special Olympics') let me repeat --- there is a MASSIVE debt mountain out there.

The only way its going to be paid off is by the taxes of us ordinary people. And by cutting services dear to us ordinary people.

GEDDIT??

Do you seriously think Mr Dale (et al) that it can be politically possible to tax all of us 'ordinary people' to get us out of this mess with out some measure to get more out of the wealthy who have got us into the mess in the first place.

Of greater interest to me is the tax THRESHOLDS of the lower paid and the 40p tax band.

We need encouragement for ordinary people to get into work.

Montgomerie is a pillock and the Great Boris does not walk on water. The poncing barrow boy rich can bugger off.

Oldrightie said...

Sadly this offhand dismissal of two billion proves the mind set of the population. What's a billion here of there. One thousand million pounds. Peanuts, eh? This attitude has got us into this mess.
I am doubtful anout George Osborne's mention of this but I suspect he is looking for a billion here and there sensibly. If this is not the way to go, he has plenty of time before making it policy. My take on his comments is "Look after the pennies etc.".
Good old fashioned houseleeping. Never say never.

Windsor Tripehound said...

There are many of Boris’s opponents (Red Ken for one) who will regret being taken in by his carefully cultivated persona of the upper-class twit. They were fooled, under-estimated him and he got in under the radar.

Not only does he possess a sharp brain; he also seems to be the only currently active politician prepared to say what he thinks, even when it’s not popular.

MikeyP said...

I was going to vote Tory again. I am not so sure now. Better let Labour create a complete mess and have a revolution!

martin day said...

MikeyP -

Labour have created an absolute mess! Whilst I am unlikely to earn £150,000 a year now or in real terms in the future I don't like the concept. However, Labour through scorched earth Economic policy will probably mean it is necessary. The VAT cut which the COnservatives opposed was an absolute waste of money and the poorest will have benifited least from it!

45% is not the only tax increase I can see coming. The Tax i would like to see put up the most is the new Immigrant tax! I think that should be £10,000 per head from non EU countries!

trevorsden said...

Revolution? yeah that will make finding all the billions dead easy won't it?

Its amazing really - this is a tory blog and still people do not realise what a complete mess the economy is in what a load of debt we have to repay somehow.

I tell you this unless we come together as a Nation we are stuffed and it seems to me the rich have to step forward as well.

If politics were so unimportant Mr Dale why are you hoping to make loads of money out of a magazine called 'Total Politics'??

Doug said...

I disagree. We are always talking about polticians speaking the truth about the situation we're in and that is exactly what Osborne has done. The mythologising of low tax Toryism isn't constructive. Charles Moore in the Telegraph gives an accurate account of Thatcher in the early years who was in fact a tax raiser because her first duty was to steady the ship. Only then can you implement reform which should lead to a lower tax environment. The simple fact is Labour's black hole will only be solved by spending cuts AND tax increases. There's a question about the best time to increase taxes but it needs to be done nonetheless. I don't want a repeat of the Republicans who only cut taxes and heaped huge debts on top of already huge debts. Anyone who thinks efficiency savings alone are going to fill the black hole is nuts IMO and is being disingenuous to the public. The size and rate of debt accruing is simply too big. Neither do I think increased receipts from a growing economy will fill the hole because that will inevitably tempt government and the markets to create another bubble followed by a bust. We need steady growth but muted growth that avoids the excesses of the last decade.

I'm glad to see I am not alone looking at the comments.

Me said...

Just when I thought the Tories were getting sorted out along comes this dispiriting announcement. I reckon Ken Clarke is the one to blame.

tory boys never grow up said...

It is not "profoundly unconservative" to argue for progressive taxes based on peoples ability to pay those taxes - Mr Dale should be aware that it is prefectly possible to argue the case for progressive taxation as a Conservative and many have done so in the past and will continue to do so (see trevorsden) - Adam Smith's views although unclear can be quite easily interpreted in such a fashion.

What Iain should have said that 45p tax rate is profoundly unThatcherite - but of course he is still in denial that that narrow school of free market deregulatory capital is now well and truly dead - and perhaps politics is at long last realigning around the social democratic/Christian democratic axis that is the norm in much of Western Europe.

PS Domesday - just because you and Thatcher say it is true - it doesn't mean that it is - but then totemic issues do not have to be supported by any evidence do they?

PPS The 45p rate is income based rather than class based - not the same thing - and I think that you will find that the IFS and most economic models do believe that it will lead to an increase in the tax take.

trevorsden said...

Agreed Doug.

Osborne was just giving a street interview saying the Tories have no intention of unfairly penalising the poor for Labours mistakes. Absolutely spot on.

As for 'Me' (et al) - 'dispiriting' ??

Its labours debt which is 'dispiriting' and thats putting it mildly.

And let me repeat to Mr Dale - how just how in the present circumstances can you oppose and extra 5p ... 5 PENCE ... on people earning over £150k?

The low paid are the ones we need to protect. Your headline makes me angry and with you and Boris.

MikeyP said...

No one recognises a tongue in the cheek, then?

None the less, there is no political party that represents me or a large number of other hardworking family members!

Don't normally do this but WV is "dongedge"!

pol-e-tics said...

It may be an inevitability that a Tory admin will apply tax rises given expenditure cuts take time to apply. But I'm unimpressed by the knee-jerk sound of Osborne's admission on the 45p tax.

The Tories need to develop a strategy that is distinct and gives the impression of leadership rather than picking up scraps from Labour's failures.

This suggests delaying on specifics until they can be presented as a more comprehensive package that addresses borrowing, expenditure and tax.

manc_ill_kid said...

Could the no rake in billions more by raising the basic rate by 0.5% to 20.5% and raising the income tax threshold by something like 0.5% of the minimum wage. So the lowest earners aren't affected at all.

There's far more basic rate taxpayers than higher rate.

Actually, could you no do this in reverse, lower the higher rate of income tax to 39% and lower the higher rate threshold by 1%.

It'll be like a slow creep towards the high threshold + flat tax system of our dreams.

edf said...

O/T but its great to see the Normandy Veterans Assoc. telling GB where to stick it

acadman said...

It really isnt a question about who should pay more, its question on whether raising tax rates for the rich after a certain point is counter-productive. The Laffter curve and all that.

Gordon Brown knows this full well but he also knows that the 'Tories for the rich' line peddled so successfully under the brain-dead, sitting duck Major administration (surely no political party has ever had such a terrible politician as Prime Minister) means that if we reverse it that charge will stick again.

It shows how low, petty, tribal, spiteful and amoral the Labour party has become - nothing matters apart from retaining power at all costs.

But that said there is a political argument for not saying we will reverse it. Try explaining the Laffer concept to the average voter and see how far you get. The politics of envy and resentment are riding very high at the moment and they simply wont believe you.

I am worried however that now Labour will be encouraged to go further and rack rates to 50% and above however.

John Moss said...

I've said it before, but I'll say it again - Boris was having a Laffer!

Zeddy said...

***Do you seriously think Mr Dale (et al) that it can be politically possible to tax all of us 'ordinary people' to get us out of this mess with out some measure to get more out of the wealthy who have got us into the mess in the first place.***

Well said, Trevorsden. It's pathetic to see how many slapped arses on here care sod all about social cohesion. So what if it raises "only" £2 billion. The symbolism is necessary. You simply cannot solve the problems by leaving the rich alone and cutting the pay of NHS staff without further polarising this country.

It's hard to decide whether those whining that £150K is the breadline deserve laughter or contempt. It has little to do with incentive capitalism and everything to do with wanting people earning less to pick up the tab for the debt disaster created primarily by the higher-paid. It's not NHS nurses who kept fuelling an unsustainable house market. It's not hospital porters who wrecked the banks.

So what if this alienates the core Tory vote. Leave aside the fact that, if only those on over £150K voted Tory, they'd never have won a general election in history. 100% of the core Tory vote could vote Tory at the next election and they'd still get soundly beaten.

The Tory party has spent most of the New Labour years pandering to it's core vote, resulting in three huge defeats at the polls.

Maybe someone could explain why 45p is a disincentive to creating wealth but the previous tax rate isn't. By this argument, all tax rates would be reduced to zero to maximise the profit motive. Of course, there'd then be no money for a police force and everyone on over £150K would be sitting in the ruins of their looted homes.

DespairingLiberal said...

Why is it "class based" as you put it to raise income tax at the upper end? It's not "class based", it's "income based". Plenty of working class people pay top rates of tax.

I agree though that it is unlikely to generate the cash, primarily because of all the (Tory newspaper-supported) tax evasion and avoidance that goes on.

In reality, the only tax measures that reliably bring in more money in the UK are VAT and fuel/booze/fag taxes. Double the tax on petrol and the government would soon fill that gaping borrowing requirement.

It shouldn't have to be that way, but decades of activism from people who don't think they should pay taxes (eg, Tories) but do think they should have good roads, schools, police, etc, have forced it to be thus.

strapworld said...

Trevors Den.

"In case there is anybody out there who is blind deaf and dumb (or as Obama might say 'qualify for the Special Olympics') let me repeat --- there is a MASSIVE debt mountain out there".

Being deaf, perhaps you can explain to me just why I am so deficient in intelligence to understand the plight of our country?

Similarly why are blind,dumb or those excellent people who in spite of adversity rise to represent their country in the Special Olympics - many of them former military personnel who have lost limbs/sight and hearing whilst serving their country- treated to such abuse?

Your prejudice is disgraceful. Does the Conservative Party endorse your remarks? If not then you should resign.

Zeddy said...

Strapworld, stop acting the slapped arse. He wasn't asking if anyone was so stupid because they were blind. He was asking if anyone was so unable to see the debt because he was blind.

And Iain's blog isn't a subsidiary of the Tory party. Does the Tory party endorse your remarks, my fat hairy arse!

niconoclast said...

The latest Tory Tax proposal is just another dismal example of what happens when a political party abandons principle for pragmatism and thinks it can operate in an ideological vacuum.Divorced from reality it stumbles into the territory of its supposed opponents accepting all their socialist programmes and is reduced to merely haggling over tax percentage points.

Conservatives are spineless,gutless,cowardly and fundamentally immoral.They despise philosophy and end up taking on board the philosophy of their opponents as it is not possible to be an ideological free zone.They have never challenged the premise behind income tax which is essentailly Marxist,Socialist Communist egalitarian,redistributive and criminal, reducing the population to mere serfs of the State,enslaved to a class of theiving Socialist bureaucrats.

Here is the wretched and obscene endgame of a party that prides itself on militant ideological ignorance and pragmatism: it is left floundering in a moral quagmire, up to its neck in Socialist ordure.

tory boys never grow up said...

Perhaps those who believe in the Laffer curve might want to point to the empircal evidence for its existence in the UK - until then it just remains a Thatcherite totem - which is not reflected in any of the major UK economic models.

Domesday said...

The reason why an increase to 45% won't work is that the people that earn over £150,000 won't end up paying it. Once tax rates reach this level they will put money into forestry, venture capitalist trusts or good old fashioned pensions (and the myriad other ways to shelter discretionary income from tax). There is a level at which 'the rich' don't want to pay any more tax and so don't, using breaks available to anyone.

Unless Osborne closes off all these diverse tax breaks (such as pensions) then the tax will not work. And if he does close off those tax breaks then he stores up another set of problems.

The way out of the recession is to reduce public sector spend, pay off debt, and encourage enterprise which will create jobs and therefore taxes.

Doug said...

The other thing that occurs to me is that everyone needs to pull together (and suffer together) because of the huge hole we're in. The fact is spending cuts, real and necessary spending cuts in frontline services disproportionally affect the poor who rely on those services. Cutting spending as a first resort, as some suggest, is nothing short of the equivalent of 'taxing the poor' like the 10p tax fiasco. At the other end those who are wealthy are far less reliant on government services but what they do have is a bit more disposable cash. If the burden is to be spread across society then we need spending cuts and tax increases. As for dissuading the wealth creators most of those who can move their wealth abroad have done it already but what about the creation of investor confidence that will result from a Tory government showing that they are tough and serious about balancing the books. I don't like to use the following analogy because it is a bit OTT but during times of war it is historical fact that the wealthy help bankroll the government and the poor do the fighting and dying.

This isn't flushing Tory philosophy down the toilet it is a temporary state of affairs to bring the country back from the brink. And as I've noted, very much in line with Thatcher's governance in the early eighties.

Twig said...

I heard about this on the Today program in an interview with Evan Davis, and to be fair to George Osborne, I thought this was his response to the BBC trying to nudge him into a trap set by Gordon Brown. If he had said anything else the BBC would have blown it into a major issue leading up to 4th June.

DespairingLiberal said...

Niconoclast, we would be fine about you not paying any taxes, but do you use the roads or have your bins collected? If so, please stop immediately - we paid for those, not you. Also if you are seriously ill, please do not phone for an ambulance or summon a doctor.

Josh said...

Iain, you're one of Brown's useful idiots.

This is exactly what he wants: reactionary Tories to kick up a fuss about the 45p band to make the Conservatives look divided.

The Laffer Curve is real, but reactionary neo-Thatcherites seem to thing that it justifies tax cuts under all circumstances. With higher rate taxes the way they were in 1979, we were on the wrong side of the curve. Are we on the wrong side still? That is unclear. You will need to provide more evidence than a move from 40% to 45% it crossing over the peak.

Osborne is correct to say that now is not the right time to oppose this tax rise. He's not falling into Brown's trap. It's a shame that you and Boris are.

Twig said...

"DespairingLiberal said...
do you use the roads or have your bins collected? If so, please stop immediately - we paid for those"


Niconoclast was talking about income tax. The bin collections and roads are not funded from income tax.

Try again.

DespairingLiberal said...

Twig - you try again. A considerable proportion of the money to fund those "local authority" services comes from central government funds raised via income tax, VAT, etc.

DespairingLiberal said...

You're right Josh - and also, the prime example oft-cited by the Right, Raegan's tax reforms, had a strongly negative effect on federal tax revenues, greatly increasing the deficit. This was not remedied until Clinton increased direct taxation.

Twig said...

"A considerable proportion of the money to fund those "local authority" services comes from central government funds raised via income tax, VAT, etc."

Are you suggesting that the council tax isn't sufficient to cover bin collections without a subsidy from central govt.?

DespairingLiberal said...

I'm not clear what point you're trying to make in your latest comment Twig. Are you just trying to cover for your cluelessness about the source of local authority funding? I was telling it as it is, not how it should be. Clearly if local authorities were to actually fund all services out of local taxation, it would require either higher council tax, some form of local sales tax or else local income taxes. Most other countries go for the middle one. In the UK, the argument has constantly been muddled by Tory ranting over local rates which end up meaning that business is insufficiently contributing to local services compared to their impact on them.

not an economist said...

Sorry but I think Cameron and Osboren are doing the right thing here. Labour are playing politics: if Ossy called for this tax to be reversed Labour would have a field day porttraying the Tories as unconcerned about the poor and seeking to feather the beds of the rich.

This is all about politics - Labour put the tax forward in the first place to play politics (i,.e., a trap for the Tories). This tax can always be reversed as soon as possible in the future. Right now the probem is as much about getting public debt down which is arguably doing a lot more harm in terms of crowding out private sector investment.

Twig said...

"DespairingLiberal
I'm not clear what point you're trying to make in your latest comment Twig. Are you just trying to cover for your cluelessness about the source of local authority funding?


You said that roads and bin collections are paid out of income tax.
My point is that:
> Road tax, fuel duty and VAT more than cover the cost of the roads
> Bin collections are a basic service, like street sweeping and lighting which is funded out of council tax

The grant is necessary because of the plethora of other social services delegated by central government to the local authorities.

"In the UK, the argument has constantly been muddled by Tory ranting over local rates which end up meaning that business is insufficiently contributing to local services compared to their impact on them".

I take it you've never had to pay business rates then?

WV: exess