The news is full of tax talk. This is partly because a group of economists, including two former members of the Bank of England’s policy committee, DeAnne Julius and Sushil Wadhwani, signed a joint letter calling for George Osborne to drop the 50% “additional rate” of tax at the “earliest opportunity”.
We now hear that the Chancellor has ordered an investigation into how much the tax brings into the national coffers. HMRC has been told to report back by January.
This shows us the power of the people (well, a very select group of the people) to get the Government to take action. Or does it? The Chancellor has done nothing but buy himself some time here.
Time to think has to be a good thing, and it is commendable that there hasn’t been another knee jerk reaction of “yes” or “no”. What is glaringly obvious, to me, is that whilst economists may be in a position to opine as to how measures such as the 50% rate of tax affect the economy, this is only part of the picture.
The other part is politics; and it is the politicians who are responsible for making changes. The damage which could be done in being seen to favour the rich at a time when unemployment is high and growth is flat lining means that the merits of the 50% rate are of secondary importance to “how it looks”.
Just listen to the news and take note of how often you hear the phrase “send a message”. Policy seems to be more about messages sent than the merit of the measure.
I fully expect that when the Revenue report back on this next year, the results will not show a strong case for the 50% rate. I’ve helped enough clients to shape their affairs to reduce the impact of the 50% rate to form my own view on the matter.
Whatever the outcome of this review, my personal opinion of this is that it won’t matter. It’s the politicians that shape the policy. Call me cynical if you will, but the bottom line is that any changes made by politicians are going to be based more on politics than economics