Tuesday, November 25, 2008

Tax the rich

Labour's new proposals to increase the tax rate on those earning over £150,000 would turn out to be their boldest move since the minimum wage was brought in.

I will not reveal many details. There are too many horror stories around of people who got the sack for talking about their job online. However, I can tell you my job involves working with some remarkably well-off people. Some of them are actually rich, in the true sense of the word.
Observing their lifestyle, the things they come up with, as well as the way they literally waste significant amounts of money on a weekly basis, I quickly became convinced that it's perfectly fair for any government to increase the top rate of income tax.

I had top managers telling me about their teenage kids throwing a strop over the family's summer holiday plan. Having scrapped a trip to the US, the idea of a mere three weeks spent in Italy was met by a tantrum. "It'll have to be compensated by a nice visit to the Caribbean over Easter", were the words.

I've seen kids donning the most expensive outfits who get whichever computer or console they want, no matter the price, on tap. And cue the 'extra-curricular' activities. Swimming, judo, hockey, hip hop dancing classes. The families have run out of things to spend money on.
I heard an eighteen-year-old spoilt brat clad in Ralph Lauren announce that a brand new massive 4x4 had been sitting outside his house pending the successful completion of his driving test. All paid for, of course.
Then there was the son of a successful entrepreneur who, bored of cars and not quite sure on how he should spend his pocket money, decided to go shopping for a small boat and came home with one worth £7 million. Seriously. And that's without starting on the second homes, third homes, third cars and fourth cars.

Simply, some people have more money that they can spend. Am I envious? Perhaps. But when you place the current 40% tax rate for the people I've just described against 23% paid by people who make just over £1,000 a month, the word 'crap' springs to mind. And whereas, say, their large pockets wouldn’t even notice an extra £50 a month going to the government, the same sum would be enough to tip an ordinary family towards bankruptcy. In 2006, it was estimated that a 45% tax on incomes over £150,000 would raise £1.2 bn in a year.
Now Gordon Brown has announced the new 45% rate to be brought in if Labour win the next election. According to the BBC, "[s]uch a move would mark the end of New Labour's long-standing pledge not to increase people's income tax rates".
Of course, LibDem MP Vince Cable is right to remark that, alone, increasing tax on the rich isn't enough. The moment you do it, closing loopholes and cracking down on tax avoidance becomes even more of an imperative. It's also true that other steps would bring in more money. A windfall tax on utility companies, for instance. Or scrapping the extraordinarily expensive ID scheme.

However, it's a fact that Labour's new proposals to increase the tax rate on those earning over £150,000 would turn out to be their boldest move since bringing in the minimum wage in 1999. That is, if they stick to the plan and don’t cave in to the Daily Mail (who are already drawing parallels with Denis Healey's 1973 vow "squeeze the rich until the pips squeak"). However, it's a welcome sign that, for once (I'll say it again, FOR ONCE), raising money is not done exclusively by barking against incapacity benefits, welfare or public services in general.
The direction, at least, is the right one.


Madam Miaow said...

I remember seeing some TV show following Tamara Beckwith and her friends, where she popped into a store and spent £7,000 on a frock. That's half a year's income for some families.

An extra 5% is half the proportion taken from poor families in the last tax change where Brown removed the lowest band of tax. And the £1.2 billion it would raise is only a fraction of this year's city bonuses.

The Millennium Dome alone cost nearly that. And war and the 2012 Olympics will be costing us many times that.

You'd think they'd at least equal the Liberal's promise of a 50p top rate of tax, not to mention the 60p top rate under nine years of Thatcher.

If they can't raise tax for the rich to a meaningful amount and drop the unfair VAT rate during an economic crisis such as we are heading for now, then when will they ever?

claude said...

I think our Stan got carried away by a sudden impetus of positivity.

I mean, in a way, just looking at the rabid reaction from the Tories and the Tory press, the 5p increase on incomes over £150,000 seems the right thing to do.

But really, aside from whether it should be 5p or 15p, what pisses me off is that this won't happen ANYWAY until 2011.
It's subject to Labour winning the elections, so the chances are slim. "Bold" Brown didn't even have the guts to include the increase in the next buget.

So if you take that into account, this budget isn't gonna do jack for the worse-off. What, a 2.5% drop in VAT? That means if you buy a pair of jeans originally sold at £20, you pay £19-50 instead.

Impressive, isn't it.

How about something truly different from recent years like that famous windfall tax on utility companies?

But yeah, Madam Miaow is right when she mentions the 60p top rate under Thatcher. Most people don't know or choose not to rememeber that.

John B said...

It's pretty symbolic (the money raised is going to be gbp600m, which although it sounds nice is 0.1% of tax revenues), and won't hit the people mentioned in your post (people who are *really* rich very seldom get paid the money as salary - it's either capital gains or inherited) - but pretty hard to object to on any kind of principle. Especially now the "ooh, but it'll drive the City away" and cut tax revenues argument can be countered with "where the hell to?, and good riddance if they find anywhere"...

I don't like the principle of removing the basic allowance from high-earners though - enormous marginal tax rates are evil when levied on the poor, and still pretty daft when levied on the rich. Better to keep the allowance in place and raise the high-earner rate to 46% (or whatever).

Hugo said...

The money wasted by the rich will go to supporting wine makers, yacht builders, hotel owners, clothes makers that support their whims. If the money is taken by the government, it will be spent on rent-seeking, coalition building, warfare, and similar repressive measures. I would *far* rather have a class of screwed up rich kids running around having tantrums, than give a penny more to any government anywhere.

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