Sep 2011 13

Sunday Times says scrap 50p tax and raise the personal allowance4

The Sunday Times has called (£) for the 50p top rate of Income Tax to be abolished. The lead editorial means the paper joins the ever-growing consensus that the rate is a political gimmick doing lasting economic damage and has to go as part of a package of measures to help get the economy back on track:

A simple cut in the 50p rate would look politically crass. But in a package that included higher tax allowances for the lower paid, a boost to spending on infrastructure and a bonfire of red tape, it would be effective and right. Nobody benefits from a tax that brings in no money and everyone suffers from the results of an uncompetitive economy.


The Sunday Times is right to acknowledge that it is unrealistic to expect the 50p rate to be abolished as a lone budgetary measure. Few would argue that when the Government do finally scrap the rate they should not also take other action to reduce the tax burden for those who do not earn over £150,000 per year.

The link to raising the personal allowance is an attractive proposition. In an interview with the New Statesman, Liberal Democrat Chief Secretary to the Treasury Danny Alexander said the ‘priority’ for tax cuts should be people on low and middle incomes. He said we should be:

trying to get to a situation where people in a full-time job on the minimum wage are paying no income tax at all.

Mr Alexander is right. The minimum wage is a flawed policy, but if it is there to indicate the bare minimum level of income someone needs to live off, it can’t be acceptable for the Government to take money from people earning below that amount. The implication from the Chief Secretary’s wording implies that he thinks the allowance should be raised to about £12,500, higher than the Coalition’s stated aim of £10,000 and the current level of £7,475.

The two proposals should be combined and announced in the Chancellor’s Autumn Statement. Removing the poorest from taxation altogether will go a long way to improve the lives of people who are currently in a welfare trap, boost economic activity and reduce welfare bills by restoring the incentives to work. Meanwhile, abolishing the 50p rate will help retain and attract the entrepreneurs, companies and investment which will create prosperity and jobs the economy desperately needs to haul itself out of its current stagnation.

Rapidly raising the personal allowance will be expensive and Britain’s huge budget deficit means it must be matched pound-for-pound by spending cuts to remain credible: there is simply no room for manoeuvre on this. Britain’s rapidly rising contributions to the EU, foreign aid and ‘ringfenced’ healthcare spending are all areas the Government should look at in order to reform the tax system. We can’t afford not to.

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  • http://www.facebook.com/profile.php?id=681281269 Mark Gregory

    isn’t it time to abolish NMW? it must be inflationary and it certainly erodes my bottom line. With the hours I work in my business I earn less than my staff at an hourly rate!

  • EI

    In other words, tax cuts for everyone! At a time when government debt is at a dangerous level I don’t think that’s wise.

  • Orac54aq

    Why should somebody on a low page pay NOTHING in income tax? Surely the point is that, if everyone gets the benefits of services, everyone contributes, however little?

    • Blarg1987

      I would have to agree woth you, although the problem is, that to have the bare minimum in life and no luxaries, I think you will find that the point at which people start paying tax has to go up. Although not perfect it makes most sense that first thing people should do is be able to feel cloth and house themselves then be able to contribute / afford luxuries, which in any decent society should be the right priority.