Cold, hard facts: Labour’s weapon against vacuous opposition to 50p tax

Among the fire and brimstone reaction to Labour’s plans to reinstate the 50 per cent tax band, the debate appears to have lost focus on two main issues: Who it affects and by how much.

Cameron says it’s anti-growth and anti-business. Labour should be swatting those vacuous, emotive and unsupported arguments away by focusing on the cold hard facts of the tax – and we should be arguing that the tax can support long-term, sustainable growth.

The idea that this tax band is anti-growth is nonsense. It hits a very small minority and, in truth, they have to be earning far more than £150,000 before it becomes relevant.

Only 1% of the population earn more than £150,000, the threshold for the tax band. When it was in place in 2012 it affected only about 300,000 people.

One attack Labour should use is to emphasise the actual sums of money involved – what does a payslip look like when you are on a few hundred grand a year and how would it change under the tax?

For the 99% of us unfamiliar with the concept of 150 grand a year it translates to £7,511.40 a month, net, landing in the lucky recipient’s bank account, according to this income tax calculator.

That seven and a half grand is safe, of course. You really need to earn a fair bit more before you would notice the impact. If you are on a salary of £200,000 a year you’ll pay an extra £2,500 a year in tax – your monthly take home pay falls to about £9,500 from £9,720. That’s not going to push too many households over the edge, though it might lead some to review the maintenance costs of their second home.

Will it make people leave the UK? According to the Tories and the British Bankers’ Association this was the big threat last time round, but the banker diaspora to Switzerland, Hong Kong and elsewhere never materialised. Why? Well, even those on £500,000 a year and facing an extra £17,500 of tax a year would find it hard to justify the hassle and expense of a move to Switzerland (where the low tax environment leads to a high cost of living anyway.) And they should be comforted by the fact that £22,970.10 is still thudding into their bank account at the end of the month.

Is it anti-business? No – because entrepreneurs usually pay themselves in dividends. Furthermore good entrepreneurs earn their riches through equity and ownership rather than vast salaries. They invest company money in expanding their business by employing more people and buying better equipment to compete. And they take their reward when they sell the business after years of hard work. The only entrepreneurs a 50pc tax band disincentivises are those with their eye on short term reward.

If anything the higher band should encourage business to focus on the long term and resist the instant gratification of a £500,000 salary. We could reward such an approach by reducing capital gains tax related to sales of small business equity that people have held for five years or more.

All of these points of course exclude the most fundamental reason that it is right to reintroduce the 50p band. None of the changes outlined above impact people’s lives in anywhere like the way that the bedroom tax already has – a tax that’s already forced people out of their homes, and away from friends and family.