THE BLOG

Labour's 50% Tax - The Sound of No Hands Clapping

29/01/2014 11:05 GMT | Updated 30/03/2014 10:59 BST

Anyone tempted to applaud, however privately, the promise by Shadow Chancellor Ed Balls to raise the top rate of income tax to 50 per cent should rethink .

It is estimated he would get around £1billion annually, which in tax terms is peanuts. The National Health Service alone, for example, soaks up more than £100billion - and rising - despite 'efficiency savings'. So why do it?

The answer is probably to provide electoral cover for more widespread tax rises if Labour wins the next election.

Neither, of course, is 50 per cent the full story. It excludes the national insurance cost to the employed or self-employed individual, resulting in a real top tax rate of 52 per cent.

Opponents claim that 50 per cent is a tipping point at which taxpayers change their behaviour, either by clever financial structuring or by leaving the country. Possibly. The launch of the Scottish tax regime around the corner in 2016 certainly makes the latter easier.

But what is certain is that the country cannot afford to drive out the talented individuals who start and lead successful businesses, particularly ones that can easily be relocated. The UK remains in debt to a jaw-dropping degree, with the Treasury still borrowing money, and, of course, paying for the privilege.

The national debt is around £1, 377billion and not going down because the Government, even one that avowedly embraces austerity, is still having to borrow large sums of money to pay its way: £85.1 billion in the financial year 2012 to 2013, for instance.

Add to this the 'little list' of problems facing the UK, which now feels like one of those dreamed up by Gilbert and Sullivan to plague the lives of harassed potentates in their comic operas.

We appear to be making less; the best of our professional services firms are struggling; the taxpayer funded public sector is still vast; London and the South-East is caught in a speculative property bubble; and all this at a time when interest rates have only one direction to go, up. Meanwhile, our schools appear to be faltering and facing cuts which, my own experience as a governor suggests, will lead to many laying off teachers.

All of which means we deserve something more honest and coherent as an alternative tax policy from Labour, not just a plan affecting one per cent of taxpayers with miniscule impact.

By contrast, George Osborne, the chancellor, deserves some credit for taking a far more forensic and effective approach to raising the tax take, but without blowing rude raspberries at wealth creators.

Instead, a loophole closed here, another there have all added revenue to Treasury coffers. He has focused, quite ruthlessly, on the twilight world between abuse and avoidance to great effect.

The coalition has also cleverly put international corporations, such as Starbucks, under such a moral obligation to pay more tax that they have often just coughed up, and all for the price of a bit of public relations. Real corporation tax rates have, meanwhile, actually fallen, which encourages entrepreneurs and international businesses.

This approach has managed to both get more money from Big Business, whilst also letting it feel the love. We are beginning to see the results, with the first tentative steps towards an economic recovery evident from the latest data.

It has been suggested by Labour supporters that the 50 per cent rate would only be a short term measure to reduce the deficit. William Pitt the Younger introduced a temporary tax, too, back in 1798 to pay for the Napoleonic Wars. Its name? Income tax.