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Coffee House

Why Ed Balls is deceiving us about his plans, and the 50p tax

25 January 2014

11:41 AM

25 January 2014

11:41 AM

Now and again, you have to ask: why did Gordon Brown get away with that massive government overspending that bequeathed such a calamitous deficit? The answer is that he dressed up his profligacy with technical-sounding language, and fooled everyone. Ed Balls thinks he can fool us again. He has told the Fabian Society today that he’d balance the ‘current’ budget – but that’s only one part of government spending. (Investment is the other part, and he’d happily borrow for this.) But this caveat doesn’t appear to have been explained to those reporting on his speech, and today’s news reports wrongly declare that Balls would balance the books overall. (Only George Osborne has made this commitment.) So Balls gets the headlines, without having to make the commitment. Result!

But on one issue, he has been honest: he’d restore the top rate of income tax to 52 per cent. And why? Because it plays to Ed Miliband’s self-defeating and vindictive class war agenda. George Osborne cut the top rate to 45 per cent (which, when you add  National Insurance, makes a 47 per cent top rate). The result? After the cut, the tax haul from the richest 1 per cent surged to a record high – they earn 13 per cent of the income but now pay 30 per cent of income tax collected. That’s what I call a fair share.

So under a Conservative Chancellor, Britain’s tax system is fairer than at any point in our history. Never have the lower-paid 50 per cent paid a lower share (now it’s just 9.7 per cent of income tax). Compare this to the top 0.1 per cent – yes, 0.1 per cent – who pay 14.1 per cent of the income tax. This is a ratio that ought to warm the heart of the most ardent redistributionist. (And it makes you wonder what would happen if the rate was restored to 40 per cent, which the CEBR believes would solicit the biggest tax windfall from the bet-paid). In pushing the rate back up to 52pc, Balls knows he’d raise less cash and had the tax burden less fairly-shared.

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As JFK said (below), the ‘paradoxical truth’ is that lower rates mean higher yields. Balls knows that there is zero economic evidence to prove that upping the 50p rate collects a penny of extra revenue. So Balls is, again, deceiving us when he says (as he did today):

‘For the next parliament the next Labour government will reverse this government’s top rate tax cut, so we can finish the job of getting the deficit down and do it fairly.’

Raising the top rate has nothing to do with deficit reduction – even the economists who claim that it raises revenue will admit the evidence for their assertion is as ancient as it is shaky. The CEBR is persuasive in arguing that, if you believe that the rich and their money have become more mobile since 1988, then this suggests the 50p tax would have a cost to the Treasury. But that’s a price Balls thinks is worth paying, to fund his little class war. You can choose, in politics. Do you tax for revenue – that is, for fair results? Or tax just to snarl at the people you think your target voters will dislike? On this, at least, Ed Balls has let us know which side he is on.

PS: Here’s a man who knew what he was talking about on tax:

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