Jeremy Corbyn wants to put up income tax only for people who earn more than £80,000 a year, he says. Anyone below that figure is safe. This reminds me of John Smith’s ‘shadow Budget’ in the 1992 general election. Smith said that the top rate of income tax would rise to 50 per cent for everyone earning more than £36,375 a year (which would be just under £72,000 today). Most people earned much less than the sum chosen, but voters decided they did not like such a clear intention to damage the higher earnings they hoped they might one day achieve. The shadow Budget was said to have lost Labour the election. Perhaps bearing this in mind, Mr Corbyn has so far avoided a specific percentage and pitched the taxable sum a little higher, but the signal is similar.
His commitment raises a question. It is now well established that lower top rates of tax bring in more money for the Treasury than higher ones. The percentage of the total income-tax take paid by the top 1 per cent of earners (people who in 2014-15 earned £162,000 or more) is now 26.9. Charts show this figure rising almost every year, except when Labour put up the top rate from 40 to 50 per cent — a late-period, post-crash gesture by Gordon Brown. Then the money raised fell, shooting up only after George Osborne brought the rate down to 45 per cent in 2012. This is the usual pattern.
So does Mr Corbyn want to put up income tax for the ‘rich’ even though less money will come in? Since he won’t win, perhaps the question is better directed at the Conservatives who are also growling against the rich, but are coyer than Mr Corbyn about what they will do to them. Do they accept the facts above? If they do, why will they not promise to cut the top rate of income tax much further (to 30 per cent?) and thus get more money out of the rich than ever before?
This is an extract from Charles Moore’s Notes, which appears in this week’s Spectator