Ed Balls is trying to get his rebuttal in first. Believing that George Osborne, in his Wednesday budget, will reduce the 50% income tax rate (either a principled move back to 40%, or perhaps a pusillanimous compromise at 45%), Balls has gone into attack mode. But his attack is not original. Indeed he is deliberately trying to trigger the heffalump trap that his mentor, Gordon Brown, left for an incoming Conservative government.
Brown knew that a Conservative government would want to remove the 50% rate, both because the Conservatives (or some of them) are instinctively against high taxes, and because the economic case against this 50% rate is unassailable. As the forthcoming Treasury study will show, the 50% band collects much less tax than anticipated. Much less than a simple “static model” calculation would predict. And the economy being dynamic, not static, the amount collected will diminish over time, simply viewed as a tax band.
But because it will also be a disincentive to work, and to effort, and to overtime, and investment, and business start-ups and capital accumulation, and wealth creation, it will have a still more malign effect. It will depress overall economic growth, and thus reduce tax revenue not only from the high-paid, but across the range. Income tax, VAT, corporation tax. Leave it in place for a few years, and we shall all be poorer. Unemployment will be higher. Public services less well-funded. Pension funds less viable. Britain less significant in the world.
The truth that we should shout from the house-tops is this: rational people want rid of the 50% rate not to stroke the rich, but to make us all more prosperous. Balls asks how Osborne can consider a special tax cut for the rich when the “squeezed middle” is suffering. The answer is, we want to scrap higher taxes because the squeezed middle is suffering. We want to promote growth and prosperity and employment for all in our economy, and the 50% rate militates powerfully against that objective.
Let’s be clear. The 50% rate was a booby-trap left by Brown and Balls to damage an in-coming Tory administration, and some Conservative politicians (and commentators who ought to know better) are fearful, for purely presentational reasons, of scrapping it. They are bound hand and foot by the Brown/Balls tactic.
Balls presumably knows this — if he does not, he’s more of a fool than I take him for. So he must be arguing the anti-growth case knowing that it will do significant economic damage. He is putting cheap political tactics and party advantage ahead of the interests of the country and the people. Ahead of the interests of the very working people that Labour claims to champion. Fool or charlatan? I go for charlatan.
And my advice to Osborne (though I doubt he’s listening)? It’s always better to do what is right, and explain afterwards to the doubters why it was right, rather than do what is wrong for fear of criticism. Time for courage, George.