The right tax cut

There’s a letter in the Telegraph this morning that you’ve probably heard about. In it, 537 people who stand to benefit personally from a cut to the top rate of income tax call for…wait for it…a cut to the top rate of income tax.

You’re shocked, right? Wealthy people want the wealthy to be unburdened at a time when the British public at large are being very much burdened. Brazen.

They do, however, on one level, have a point. Not on the laffer curve – that argument is a load of nonsense which has been debunked excellently here – but they’re right to say that lower taxes mean that more money is spent, which flows through the economy and stimulates growth. That stands to reason. That makes sense. Ed Balls agrees.

But as tax cuts go it’s a relatively inefficient one. It means that already wealthy people will have even more money. Wealthy people are more likely to save than, say, someone earning the minimum wage. Money which is saved, sitting idly in bank accounts as banks refuse to lend is not money that’s working hard to get the economy moving.

So instead of axing the 50p top rate of tax – an inefficient measure which the public would hate at a time of extreme austerity and which would only benefit the very richest – why not right one of the greatest wrongs of the last Labour government, and reinstate the 10p tax rate for Britain’s poorest workers? Instantly, you give a cash boost to millions who are struggling to make ends meet, the incentive to work (rather than receive benefits) is increased and crucially, the money they gain will be spent, not saved. That’s a tax cut that works.

Perhaps I should get together a letter signed by 500 of the poorest workers on society in support of these plans? I doubt the mainstream media would publish it. Because they’re not rich. They’re not well connected. They’re the voiceless, they’re some of the hardest hit.

But they could be the key to Britain’s economic recovery.