50p tax band cut would be an ideological choice…
This government has a rather annoying habit of dressing-up its own ideological conundrums in economic and rationalist verbiage. So, it is with the debate over the 50p top-band of tax. The fact is that economic arguments either way will be lacking in hard evidence until a full calendar year has passed of collecting the new rate. It’s also fair to say that the flimsy ‘economic’ arguments for its abolition can be quite easily dismissed. Also, it is a band whose collection is somewhat uniquely disadvantaged by the problems of tax avoidance and evasion. Problems that this government has not exactly contributed an awful lot to countering by taking measures like targeting HMRC for cut-backs and encouraging companies to take their wealth out of the country by taxing off-sore tax havens at just 5.75%.
In lieu of better evidence I am therefore inclined to agree with Ed Balls that the government should prioritise a cut in VAT. This makes more sense because VAT detrimentally affects the people most likely to actually spend money they get back, ie, middle and lower-income households; increasing their spending capacity would therefore benefit the economy. Cutting the 50p band and therefore making the rich just that extra bit richer is unlikely to benefit the economy as they will more than likely just trouser the extra money.
It’s true that the government are not the only people who make ideological arguments around tax – the left does too because for them its a symbol of redistribution and the rich ‘paying their share’. Naturally, I share these concerns but one of the interesting things about the crash is that it has actually turned old arguments on their head – the left now has the best case on economically rational grounds and a healthy dose of socialism would do an ailing capitalism some good too. We should not let this government get away with abolishing a rate of tax whose existence is not only fair but economically justified.