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The UK retains a bad tax policy for mostly PR reasons

Author’s note: It seems that we have started Monday in full “let’s shoot at Cameron” mode today. Well, it is still the game shooting season.

The comments from UK prime minister David Cameron, saying it would be wrong to scrap the UK top income rate of 50 per cent on incomes of £150,000 a year or more (which when other changes are taken into account, means a marginal rate of more than 60 per cent), are typical of this regime. The government knows that the tax rate is well on the wrong side of the Laffer Curve, but this, remember, is a regime that cares with almost pathological zeal about the image it projects. The key is to show that those evil, high-earning bastards (like the sort of people who start businesses and run them) take their “fair” share of the current pain being inflicted in the name of deficit reduction.

The Tories played a high price for an inept general election campaign that required them to ally with the Liberal Democrats, a party full of people whose hostility to entrepreneurship and wealth creation is even more severe than it among parts of the Labour Party. And this hostility to high earners comes particularly ill from politicians, such as Mr Cameron, who have enjoyed the benefits of a rich inheritance rather than having to get their hands dirty by creating a business from scratch. Very ill, indeed.

6 comments to The UK retains a bad tax policy for mostly PR reasons

  • Jim

    Don’t forget that the new top rate actually kicks in at a bit over £100k due to the removal of allowances etc. I think the marginal rate for some people can be 60% for some people at certain income ranges around £120k-ish.

  • Myself and a number of other bean-counters had a detailed discussion about this over at AccountingWeb and came to the conclusion that majority of people who build their own businesses and employ people would not be affected by this as they would primarily receive dividends based upon limited company share ownership rather than in the form of salaries.

    People like footballers and celebrities (with their image rights) are able to split their income so that they are able to pay lower rates of corporation tax rather than income tax.

    So those who are really impacted are those who are earning 150,000 plus, but still employed on a purely PAYE basis. Jobs paying this level of incomes tend to be concentrated in the South-East and mostly within finance roles within the city – as far as the politico’s are concerned these are fair game for penal levels of taxation.

    The people sufferring these very high rates of taxation won’t put up with this forever. At some point they will take action to reduce their tax levels down to reasonable %-age.

    Certainly for myself, I read the writing on the wall a few years back and left the UK for countries where the levels of taxation weren’t quite so penal (around 10-20%).

    I can effectively work half the time I was doing and still have the same level of take home pay. Equally, away from London and the South East I no longer have to deal with the nightmare of commuting which was taking 2-3 hours of my time each day. My commute is now 15-20 minutes.

    All that is going to happen is that those highly paid, highly skilled jobs which currently take place in London will go unfilled or move abroad as those who would have moved into them from London, New York, Frankfurt, Singapore decide instead to move the job itself elsewhere.

    This is why rents in Singapore, Hong Kong and Geneva are currently going through the roof. People are reading the writing on the wall and leaving – or worse still – not coming to London.

    Cameron is being a double-idiot because this has been explained to him in detail and explicitly that overall tax receipts will be lower because people will eventually leave.

    The longer this rate of taxation remains, the more people will vote with their feet and go elsewhere taking their roles with them.

  • Taylor

    There’s another point isn’t there – about the loss of information. By attempting to drive out those earning salaries of £150K+, Cameron is effectively saying that under his stewardship, the economy will be able to get along just fine without the signals embedded in the labour market.

    It’s fingers in the ears time . . . lah lah lah

  • fred

    An acquainance of mine, a heart surgeon, once it looks like he’s going to hit the 150k mark stops doing private surgeries that he doesn’t have to. He says the risk associated with the procedures (e.g. ongoing complications that come out of his pocket and can go on for weeks) just isn’t worth it for 48% of what he’s paid to do it.

    So he goes clay pigeon shooting instead.

    And who wins out of this? The people who own the clay ground. Not the taxpayer, not the exchequer, not the surgeon, not the patients.

  • John McVey

    Is there a days-worked pro-rata system for thresholds in UK? There is (or was?) one in Australia. If not, watch out for one coming.

    How they work is that they reduce the thresholds by the same proportion as the number of days worked compared to the number of working days in one year. Thus if a threshold for the 50% marginal rate is £100k and someone deliberately works only for six months then the 50% rate kicks in at only £50k for that someone. Thus the shooting doctor could find himself with twice the tax liability he was expecting.

    Note that contrived days-worked arrangements count as tax evasion.

    JJM

  • Paul Marks

    Do not worry the “Conservative” government in Spain now has an even worse tax policy than Britain – the top income tax rate in some parts of Spain will soon be 56%, it is “only”50% here. I doubt the freshly elected government of Spain is increasing the top rate of income tax for “P.R.” reasons – no they actually believe this insanity (i.e. that they are going to get more revenue this way).

    The intellectual international elite believes various fundemental things that are not true (and that is the kindly interpretation – the alternative one is that they are destroying everything on purpose).

    They will not fundementally change direction on things like the Welfare State (in Spain they actually can not do so – because all this stuff is written up as “rights” in the Spanish Constitution of 1978).

    So the economies of the West will collapse.

    It is that simple.