Now is NOT the time to abolish 50p tax rate

Wednesday, September 7th, 2011 @ 1:26PM

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A letter appeared in the FT today from a deficit* of economists which suggested that the 50p tax rate be dropped. Their reasoning, as was stated on this morning’s Radio4 Today programme is that hedge funds are relocating to Switzerland in favour of the cheaper tax. While I assume if the tax was dropped the 0.5% of the population in the UK who actually pay that level wouldn’t contemplate leaving?

Having worked with hedge funds I recognised a few of the names, such as Sushil Wadhwani, listed in the BBC article as former Monetary Policy Committee (MPC) member. In other spheres he is better known as founder and CEO of Wadhwani Asset Management, the algorithmic hedge fund recently acquired by one of the worlds largest hedge funds (Caxton) for what is rumoured to be tens if not hundreds of millions. So he is certainly someone who knows what a hedge fund manager is likely to do. As is Roger Bootle founder of Capital Exonomics Ltd, a firm that advises hedge funds.

However, a better question might actually be how many hedge fund managers actually pay the 50p tax rates on their global earnings? Also if the 50p tax rate was dropped would the people who considered moving to Switzerland where they would pay 11.5% really mind paying 40%? And for those people who are paying the 50% tax on their UK earnings how much of that extra 10% would they actually spent?

I would say a much better use of resources at the current time is to move those with the least completely out of tax. The sooner we can move to the 10k tax free amount the better it will be for the economy as these are the people who will actually spend the entire difference. These are the people who will change the overall system. Not those on the highest amount who will save their 10% on everything over £150,000 no doubt in a nice offshore account where further interest is not taxable.

At the same time as these “economists” are looking to preserve their self interest a study was released by Save the Children and the Daycare Trust which found the poorest families are getting into debt and eating less as they find themselves paying nearly a third of their incomes on childcare. The majority of people (58%) said “they were, or would be, no better off working once children were paid for.” (Guardian)

There is a huge disconnect between those at the top and those at the bottom of the income gap. This inequality ballooned under the Labour government with such policies as dropping the 10% tax rate. But now the current government has a chance to reverse the policies of the last, to look after those at the lower end of the income spectrum and decrease the inequality in our society. The 10k tax free allowance can help those at the lower end, increasing their take home income and hopefully giving them an equal footing where work pays more than not working. If not their needs to be additional help to cover childcare costs. The last thing the economy needs is for people to be out of work because they couldn’t afford childcare not for a few hedge fund managers and self interested consultants to be threatening to leave the country if they don’t get their way.

*the collective noun for economists

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Categories: Economics, Politics

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