The 50% tax rate: common sense not class war

By Ed Mayne

The reaction of the right-wing media to the new top rate of income tax has been quite simply astonishing. Within hours of the announcement being made the whingeing began.

The Evening Standard started it. Their headline for the afternoon was simply, “50% TAX RATE”, written in a size so big it was probably visible from space. The edition was filled with stories of “alarm” in the city, biggest earners fleeing to “escape” the top rate, and Baroness Valentine, chief executive of London First, complaining that, “Two thirds of what it costs to employ a company director in London will go not to him or her but straight to the taxman”. Then Guido Fawkes had a go, “What is Labour saying to those who work hard and become successful? ‘We will punish you’”. As if to imply that only rich people work hard in this country!

And the next morning the right-wing papers really tried to stick the knife in. The Sun called it an “assault on wealth-creators”, the Daily Mail labelled it “the politics of envy” and The Times said it was “a terrific Budget for Switzerland”.

Yet each seems to have misjudged their readership. A Populus poll for the Times found an approval rating for the new top rate of 57%. The Torygraph, which had labelled the budget a return to “class war”, reported 68% support.

Why the right-wing press reacted quite as they did is puzzling. The Guardian suggests it is a reflection of the hostility of highly paid editors and proprietors to being “hit in the wallet”. This is possibly true. But could it be simpler? Is this a case of both politicians and the press misreading the feelings of the majority of the British public about the tax system for far too long?

A key part of New Labour philosophy is that income tax levels should not be raised. Such policies, it was thought, would distinguish the modern Labour Party from that of old, which famously presided over a top rate of 83% in the 1970s – enough to make even the most patriotic of high earners consider tax exile!

Crucially, it was thought that the majority of British voters would not tolerate an income tax increase. The right-wing press appears to have swallowed this line too. But what both seem to have misjudged is the inequality of our current tax system and the fact that a huge number of people resent it.

The gap between rich and poor has grown over the last decade. Recent research by the Joseph Rowntree Foundation shows that the gap between the incomes of those at the very top and those at the bottom has widened since 1997. The tax system has undoubtedly played a role in this.

In the last tax year, the Institute of Fiscal Studies estimated that out of 30.6million taxpayers in the UK, 3.6million paid the top rate, specifically anything earned over £40,835. Yet even within this top bracket the gulf has widened, particularly in places like London where many top rate payers feel the pinch of the higher cost of living, not to mention the extortionate price of property.

The Chancellor estimates that just 1% of taxpayers earn over £150,000. This will inevitably include many city slickers who have accumulated huge personal fortunes during the boom years, enhanced by unregulated trading practices, tax loopholes and tax havens. John Bird and John Fortune recently quipped that in some private equity firms cleaners paid a higher proportion of tax on their income than company partners.

It is only fair that this system is now tightened with a new top rate of income tax. Those who benefitted from the boom should now pay a bit more tax to get us out of the recession. Bankers, company directors, town hall fat cats, and even the Prime Minister, who certainly benefited from the boom years, will all pay more for the time being. This is pure common sense, not class war.

This new top rate of income tax is fair on another level too. One of the things often said in defence of global capitalism is that the wealth generated at the top trickles down to those at the bottom. Try telling this to the people of places like Barking and Dagenham, which is located just a few miles away from Canary Wharf. Although this Labour Government has delivered better hospitals, schools and got more people into work during the boom, many people feel they have missed out. This is one of many reasons why the BNP are currently the second biggest party on Barking and Dagenham council, where they have 12 out of 51 councillors.

Sadly, a large proportion of the revenue raised from this tax increase will go to servicing public debt. However the economy will recover. When this happens we should remember the feelings of those who missed out during the last boom, when some got richer and many got poorer.

We should therefore think about keeping this top rate of income tax and making the tax system fairer as a whole. When economic prosperity returns to this country, we can therefore ensure that the wealth generated at the top really does trickle down to those at the bottom.