Another Dark Day for Ambition

April 22, 2009 7:18 PM

Some of you may remember that back in November, upon learning about the top rate of income tax was being increased to 45%, I said that Alistair Darling had sounded the death knell of ambition in this country.


Well today, things just got a whole lot worse. The Chancellor announced that anyone in Britain earning over £150,000 per year would pay 50% in income tax.


There are three big problems with this proposal:

1) The message it sends to potential investors. By ramping up taxes on the rich, this Government is saying it plans to punish success, and discourage high earners. We're in a deep recession, Darling admits that, and the best way to get us out of it is to get as much FDI flowing into the country as possible. All this sky-high tax rate will do is convince multinational companies that locating in Britain is a mistake. The Chancellor spoke today about doing the right thing for business, about rebuilding the financial services industry and taking real steps towards getting Britain back on the right financial track. Turns out, this was all just rhetoric, his announcement today will produce quite the opposite result on every account.


2) The truth about people who earn over £150,000 is that they tend to have highly transferable skills, and thus will avoid paying this tax by simply relocating to a country that has a less punitive tax system. The Times has labelled it 'the brain drain' - I have to say I agree. If there is one surefire way to chase our wealth creators and entrepeneurs from the country, this is it.


3) It will lose the government money. Last week, the IFS calculated that raising the top level of tax to 45% would not bring in the estimated £1.6 billion, but probably half that, if the Government is lucky. This should have caused a re-think on the part of the Treasury. But their flawed logic instead caused them to increase the tax further, instead of decreasing it. Hot of the press is a CEBR report showing that even when combined with the increased tax on pensions, this proposal will lose the Government £800 million. Thoroughly ill thought out, then.


This proposal will be shown for what it is in years to come: petty political point scoring at a time when people are crying out for real help from their Government.


  

Some of you may remember that back in November, upon learning about the top rate of income tax was being increased to 45%, I said that Alistair Darling had sounded the death knell of ambition in this country.


Well today, things just got a whole lot worse. The Chancellor announced that anyone in Britain earning over £150,000 per year would pay 50% in income tax.


There are three big problems with this proposal:

1) The message it sends to potential investors. By ramping up taxes on the rich, this Government is saying it plans to punish success, and discourage high earners. We're in a deep recession, Darling admits that, and the best way to get us out of it is to get as much FDI flowing into the country as possible. All this sky-high tax rate will do is convince multinational companies that locating in Britain is a mistake. The Chancellor spoke today about doing the right thing for business, about rebuilding the financial services industry and taking real steps towards getting Britain back on the right financial track. Turns out, this was all just rhetoric, his announcement today will produce quite the opposite result on every account.


2) The truth about people who earn over £150,000 is that they tend to have highly transferable skills, and thus will avoid paying this tax by simply relocating to a country that has a less punitive tax system. The Times has labelled it 'the brain drain' - I have to say I agree. If there is one surefire way to chase our wealth creators and entrepeneurs from the country, this is it.


3) It will lose the government money. Last week, the IFS calculated that raising the top level of tax to 45% would not bring in the estimated £1.6 billion, but probably half that, if the Government is lucky. This should have caused a re-think on the part of the Treasury. But their flawed logic instead caused them to increase the tax further, instead of decreasing it. Hot of the press is a CEBR report showing that even when combined with the increased tax on pensions, this proposal will lose the Government £800 million. Thoroughly ill thought out, then.


This proposal will be shown for what it is in years to come: petty political point scoring at a time when people are crying out for real help from their Government.


  

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