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Why tax the rich?

Robert Peston | 11:16 UK time, Friday, 24 April 2009

It is no exaggeration to say that this week's budget will define our politics, our prosperity and the nature of our society for at least five years and probably much longer than that.

As Stephanie Flanders, Nick Robinson, myself and others have elucidated, everything stems from the massive increase in public sector debt over the next few years to a level that will take more than a generation to pay down to levels that we consider normal.

The political debate will be over whether to attempt to pay the debt down faster, by cutting public spending more than the chancellor set in train and/or by increasing taxes more than he announced. That debate will frame the next general election.

How fast we reduce the debt and how we pay it down will also have an impact on the long-term growth of the economy and on the prosperity of the nation.

There is a trade-off between the scale of early pain - in the form of how fast and how much the size of the state is shrunk - versus the rate at which the economy will subsequently grow.

Economists are, of course, divided about whether our net long-term prosperity is maximised or minimised by being brutal early with public spending reductions.

But even if it were incontrovertibly true that we'd all be richer in the long term from fast and savage cuts in public services, those cuts would be felt most acutely by the poorest - which many would see as an argument for a more gentle approach.

Whether David Cameron likes it or not, the long shadow of the Thatcherite 1980s still conditions the consciousness of voters and politicians.

Which brings me to what I really want to talk about, which is the attempt to increase the tax burden on high earners.

According to the Treasury's figures, £7bn will be raised by 2012/13 from three raids on the rich: the new 50% tax rate for those earning £150,000 and above; the tapered reduction of tax relief on pension contributions to 20%, again for those whose incomes are £150,000 or more and the abolition of tax-free allowances for those earning £100,000-plus.

In respect of the hole in the public finances, the better-off are being asked to make a disproportionate contribution. But £7bn won't go anywhere near to closing a gap between the government's income and expenditure, which is currently running at £175bn.

2009 Budget Day

What's going on can perhaps be best seen in a bit of analysis by the Institute of Fiscal Studies.

It points out that if high earners made no attempt to avoid paying the new 50% rate, this new top rate would yield £7bn a year on its own, as opposed to the £7bn actually generated (in the Treasury's view) by all three tax changes.

But the Treasury believes that the yield from the 50% rate will be just £2.4bn because high earners will adjust their behaviour in ways that mean they avoid incurring all the increased liability.

Here's the thing. The IFS says that the Treasury's own figures imply that the new tax rate will in fact only generate about £1bn of extra tax, once the depressing effect on revenues from VAT, stamp duty and other indirect taxes is included (because the wealthy will spend less than they would otherwise do).

What's more, the IFS says that the Treasury is actually being too optimistic, on the basis of the best economic model of the impact on revenues of tax-rate increases. This model predicts that the Treasury will actually lose money on the new 50% rate, once the reduced harvest from indirect taxes is taken into account.

Now we're in the realms of behavioural uncertainty here. But there is a clear implication that if the Treasury simply wanted to raise a big sum of money fast and cleanly, it would have gone for other kinds of tax rises.

Which in turn implies that the 50% rate is less of an economic necessity and more a return to Labour's 1980s ideological view of fairness in taxation, that taxing the rich is a good in itself for the way it closes the gap between rich and poor.

The prime minister insists that New Labour - or Labour reconstructed as a party of financial aspiration which celebrates wealth creation - isn't dead. But many will say that the budget tells a different story.

Comments

Page 1 of 5

  • Comment number 1.

    'Tax them til' the pips squeek' - thats what I say. They (investment bankers et al) have been ripping us all off for years and now they are in the 'Brown' stuff thay want ordinary folk to bear the pain.

  • Comment number 2.

    that was a quick response to my post on your last blog!! ;-)>

  • Comment number 3.

    This budget is the final nail in new Labour's coffin. Enterprising socialist consumerism may be a great political platform, but fiscally it is about as watertight as a storm-cloud. Admittedly, everyone is suffering in this crisis, but our money mismanagement will cost us deeply in the long run.

  • Comment number 4.

    But the point is that Labour having done nothing to close the gap between rich and poor while in Government, and the life chances of those from poorer backgrounds ['social mobility'] are no better. A Labour Government!

    Yet Cameron refuses to bite the bullet on things like grammar schools..

    Peston, you could a lot worse than pop down the Labour conference in Swansea, to hear them bleating about how they have all the right ideas, as the 'enterprise economy' collapses around them..

    And the $64,000 bn dollar question is -- 'Do we need more regulation or less ? Is de-regulation what got us into this mess ? Or is a bonfire of regulation like the Working Time Directive what is required to allow small business to flourish and get us out of the mess ?'

  • Comment number 5.

    Showing your true (blue) colours, Robert?

    Let's not forget that many of these high earners are the same people who created the current mess in the first place.

  • Comment number 6.

    There was a time when anyone with an income of £100,000 per annum was classified as a millionaire. The fact the chancellor has decided increase to 50% the income tax rate on incomes of £150,000 or more, must mean that that a hugh percentage of the population must be very prosperous.
    If that is the case one is bound to ask - from where does their prosperity originate?!!!
    Are we being conned?

  • Comment number 7.

    It is time the more wealthy did pay more in tax after all they have had a good time for quite a long time. Can someone take a look at the generous pensions MPs enjoy and see whether pensions for members of parliament can be reduced to help the economy.

  • Comment number 8.

    Isn't it just AMAZING how quickly this government's financial forecasts come unstuck - Wednesday it took about 90 minutes!

    UK to lose its AAA credit rating - you bet - just a question of when. Then we'll see what happens on the bond markets.

    I suspect all involved in this budget knew it was a dead parrot before its release. The debt cannot be financed on the 'greater fool' theory on which the UK & US governments are now relying to scam foreign investors into bankrolling their electoral lifestyles.

  • Comment number 9.

    Robert

    As far as I remember the Thatcherite years were about buying your Council House if you were lucky enough to have one. Working really hard, for very long hours to put your deposit together, buying the house/flat finally then working just as many hours to keep up with the 15 percent mortgage rate. Hard work meant you got on. Hard work meant you paid income tax. I also seem to remember that Thatcher + Major were trying to encourage hard work as means of getting on in life.

    Today its better to work 16 hours a week, claim benefit for everything (children, work, council tax etc), those who work hard and push themselves to get on (the poor old middle classes) seem to be paying for all this and back to work, keep off the dole figure schemes, retain the merchant banks etc etc. Indeed there is absolutely no point to effort at all.

    Other bloggers, do any of you know of any decent jobs that pay say £23/4K for 16 hours a week so I can get all the benefits and pay little tax. 2 such jobs would be even better, then hubby and I can job/time share, still get the child benefit etc.

    Labour has made a mockery of hard work and getting on in life. This 2009 budget just shows it.


  • Comment number 10.

    Why not just increase the basic rate of income tax? It wasn't long ago that it was 25%. And, now oil prices have settled, really seriously hike fuel duty (10p perhaps?).

    These could raise the serious amounts of money needed. And recognise that all of us have been living beyond our means, both economically and environmentally, even if some have been considerably more profligate than others. Attempts to 'grow our way out' by artificially inflating the economy merely reproduces the mistakes of the past 2 decades, and penalises those who have been prudent, saved, and not overspent (by, in effect, devaluing wealth). The property market, at least, has to be deflated.

    Politically there is a real mess. After all, the current crisis is the legacy of Thatcherite reforms, so the Conservatives have little to crow about. But those same policies were imprudently perpetuated by Labour. A curse on both their houses...

  • Comment number 11.

    Just what this country needs - a pointless political gesture to headline the budget. No deep cuts in spending, no meaningful tax rises. Mustn't frighten the horses with an election looming.

    Meanwhile debt is spiralling out of control, which will take a generation to pay off. Thank you Labour, thank you Brown and Darling.

    Who in their right mind will vote Labour at the next election. Actually I might - I would just love to see the expression on Brown's face if he was landed with the mess of his own making.

    Realistically though the Tories will have to sort things out as they did in the late seventies. And after they do and everyone has forgotten all about this, we can elect Labour again to repeat the cycle.

  • Comment number 12.

    Well the budget just hinted at how bad it is, and it going to get a lot worse before it gets better. The full impact of those not working (in addition to the official unemployment figures) and those on rate cuts or reduced hours, leading to a bigger than expected reduction in income tax to the treasury, has yet to hit home.

    This budget was all about deferring the difficult decisions till after the next election by mainly targeting people who wouldn't vote for them anyway. The strange thing is this implies that they actually want to get back in! Now we know they must have lost the plot!

  • Comment number 13.

    More froth, one percent affected by the 5O % tax band, howabout the stuff affecting the other 99% of us? and those folk unable to swindle and scheme out of paying their tax liability.
    Who among the 99% cares that a few overpaid folk (such as our local council CE) will have a little trimmed from their loot, not me.
    This blog is becoming less relevant by the day.

  • Comment number 14.

    What is needed is something radical, right now, not half hearted but full on. Something as radical as privatising the NHS, this colossal monolith, that is almost impossible to reform in its current state. Keep it free at the point of delivery, but have private companies bidding for scarce government resources.
    A: You will get much better value for money.
    B: You will get a better service.
    C: The money raised through the sell off and savings will go a very very long way to clearing the debt.
    Its a no brainer, the NHS should not be a bureaucracy, it should as a collective be a health service providing the very best service free at the point of delivery.
    Privatise the NHS now, clear the national debt, enter the 21st century with a health service lean, efficient and effective.
    In simplistic terms the economy, welfare state etc are only valid in their current form for a finite period of time. The world moves on and so these things must also evolve, its part of being a human invention. To a certain extent I agree with you, there has been tinkering now is the time for radical action.
    Yes change is a scary thing, no one likes it, but in times such as these were are presented with two options, despair, gripe and do nothing, or seize the opportunity to radically overhaul and reinvent ourselves in ways we would not allow before. When you have already fallen there is less to be afraid of, we are not dead!

  • Comment number 15.

    Browns instinct is to tax and spend, and perhaps only the moderating influence of Tony Blair restrained him. Brown's heart is good but his thinking and grasp of macro economics is poor. He was so very very lucky to be Chancellor after the ground work had been skillfully carried out by Ken Clarke, and through having benign economic conditions for his time at No 11. However, he mistakenly thought that he was master of the universe and believed his own bluster about his "new economics". Instead, by borrowing heavily at the peak of the economic cycle and vastly increasing the bloated, overpaid and over-pensioned public sector (the payroll vote?) he ensured that the UK was very ill prepared for the downturn, which was sure to happen, sooner or later, from one externally driven event or another. By changing the BOE targetted inflation rate to CPI instead of RPI he ensured that the rises in housing costs and council tax didn't cloud offical minds too much.

    He has though made housing more affordable now - just as mortgage finance has become almost unobtainable.

    Perhaps AD should have taken a leaf out of the Nigel Lawson budget book and announced several spending tax rises well into the future, thus creating a "beat the budget increases" boom.

  • Comment number 16.

    Absolutely spot on Robert - New Labour is long dead, they've returned to a policy of making political statements by disproportionately taxing the successful for minimal fiscal gain. Those who can will relocate to an environment that better enables them to gain the rewards from their efforts, disadvantaging Britain even further by removing entrepreneurship and innovation from the landscape. Welcome back to the 70's..

  • Comment number 17.

    It was just the budget we were all waiting for. All the measures the government now have in-place should ensure a full recovery begins by Autumn at the latest. Conditions should be right by next June for another housing feel-good-factor to have kicked-in, and provide Gordon with another five-year term.

  • Comment number 18.

    A massive 12.5 billion pounds spent on a VAT cut last Autumn. Positive effect on our economy...?

  • Comment number 19.

    What you have not worked out is that Darling Gordon are hopeing to have inflation sky high by 2010 so we will all be earning more than £150k. Problem solved.

  • Comment number 20.

    Please, you work for the BBC, so could you try to write reasonable English?
    "As Stephanie Flanders, Nick Robinson, myself and others have elucidated," - why "myself"??? What is wrong with "I"?

  • Comment number 21.

    Sorry Robert but this is simply a satement of the obvious. Direct income taxes are easy to avoid, mitigate or defer, particularly if you are wealthy enough to employ somebody to work it out for you. Indirect taxes are regressive and very, very efficient. The introduction of Vat (as a replacement for purchase tax) also simplified the original regime into zero and 15%. The old purchase taxes had a multiplicity of rates - seen as a bad thing -but could therefore be fine tuned much more effectively.
    Now that Labour have kept the left in line with a few inefficient, but headline catching, 50% rates, look to an increase in both absolute levels and the number of Vat rates/catagories so as to increase tax yields and to mitigate to a certain extent the regressive effects. My guess is that food, books and entertainment will all get the treatment - after the election of course, but also irrespective of who wins it.
    More important news today was the rate of decline in maufacturing GDP of around 11% over the last two quarters. These figures include energy, which is a big number and doesn't change much, so non-energy manufacturing is declining by much more than the gross GDP figures indicate. This confirms what those of us who work in the real world of manufacturing (grimupnorth, lastmanufacturer etc) have been saying for some months. My experience is a 20% drop in the last quarter.
    Now that should have been news and its likely impact on real numbers in areas like employment hasn't been adequately covered by the BBC's Business Editor. Time and again bloggers have been asking for "real" business stories, or confirmation of their experiences, but once again we have a "City" story. Not really good enough.
    TM - StH

  • Comment number 22.

    Is that all?

    Here we are on the brink of indebtedness that would frighten any CEO (except of course a modern banker)and all we get is an additional tax on the rich.

    This was an ideal time to get the country pointing the right way, and it has been blown. I seriously doubt that we will survive the year without IMF assistance now.

    What un-principled cowards we have in charge. All budgets have political bias, but this was just politics called a "budget".

    Spending virtually untouched. Unbelieveable mis-management.

    Thank goodness this lot are not responsible for the banks as well, or we would be in an even worse mess.

    Hang on a minute.....................

  • Comment number 23.

    This may be overly simplistic and I would appreciate someone with more expertise correcting me if it's wrong...

    It was my understanding that a large portion of the country's debt has been used to bail out the banks. Surely in the long term the fortunes of the banks will turn and they will repay the loans thus bolstering the economy.

    All the current reports seem to focus on the debt having to be serviced by the tax payer but the bailouts were investments which we were assured would eventually provide a return. Is it not the case that if the banking sector turns around, the country could be in a very healthy financial position in the future?

  • Comment number 24.

    It's all very well talking about the burdens falling on the poor as though this is an option for people of a religious bent only. It is that but it is more. These days, many of the less well off will decide that society has nothing to offer them and that those who have been looking only after themselves have lost any moral high ground they ever had. The less well off will take the law into their own hands. That will be very painful indeed for everyone, as we shall then lose whatever social cohesion we may have left and plumb the depths of anarchy. I have argued for years that economists and accountants don't build into their forecasts and accounts the relevent social conditions and the value of morale, and have even found economists who agree with me. It is important now to take asocial conditions into account, instead of pretending that only money matters. The days of 'Busying giddy minds with foreign quarrels' (Shakespeare - Henry IV pt 2) are over and giddy minds now have celebs instead. How much longer will that illusion last? We need some hope.

  • Comment number 25.

    Rather than taxing the rich, more revenue would be brought by changing our tax regime so that it is more attractive for the multi-national companies to pay UK tax than to pay tax rates of other countries.

    Even the unpopular taxes could be made more bearable by introducing more sliding scales of pay rates on income tax, CGT, IHT, stamp duty, excise duty and VAT. This will make it less worthwhile trying to find ways to minimise taxes at the thresholds.

    If we have more people paying smaller amounts of tax, it is better than trying to get large amounts off just a few people.

  • Comment number 26.

    "But even if it were incontrovertibly true that we'd all be richer in the long term from fast and savage cuts in public services, those cuts would be felt most acutely by the poorest - which many would see as an argument for a more gentle approach."

    Doesn't this depend on which specific cuts are made and how?

    For instance the choice could be between cutting nursing and cleaning staff in hospitals, or cutting away some of the layers of bureaucracy and spectacularly failing high tech projects bloating the system.

    The tendency though is to err in favour of the gravy train riders, because they might take their "talents" elsewhere. This is the clearest indications of which self-aggrandising interest group is gifted with making such decisions.

  • Comment number 27.

    Good one #1 TheNewPonzi... only "investment bankers et al" earn over 150k

    Sometimes the THINKING on here is so deep it's frightening.......

    I'm looking forward to helping out the people who ran up huge Credit Card debts, the ones that "Released Equity" for holidays and cars, the Buy to Let entrepreneurs and the downright feckless....

    The ones that pillaged the system have walked away into the sunset with their loot.... we aint getting it back!!!

    The issue is that higher earners already pay a higher rate of tax, should there be a Higher-Higher Rate (that includes the Ants, Decs, Pestons & Roonies of this world) because clowns out there think the only high earners are Bankers et al!!!

  • Comment number 28.

    Over the past decade, the super rich pay 10% tax (recently raised to 18%) compared with 40% for the ordinary middle class.

    The fear is, if we asked the rich to pay the same tax as everyone else, they would leave the country. There are relatively few rich people, the government says, it would gain much anyway from taking them more.

    Lenins Birthday, April 22nd, was the date chosen by the UK government to bring back taxes for the rich for the first time since former UK Prime Minister Margaret Thatcher slashed them in the 1980s.

    Tax specialists at the Institute for Fiscal Services say it will raise £3 Bln at the most, a drop in the ocean when the UK faces a budget deficit of £175 Bln.

    JM
    Spryka

  • Comment number 29.

    Surely the only fair system of taxation is that everyone is taxed equally - say 25%. Rich or poor, you pay the same proportion of your income. Progressive taxation is not about fairness but about assuming people with more money should pay more than people with less. In other words, envy.

  • Comment number 30.

    We need further information before making a judgement on whether the new tax rate is in everyone's overall best interests. What are the potential downside risks - how much of the income tax collected already comes from the top 1%. There must be a risk that people will just decide they do not want to earn as much anymore, because it is no longer socially acceptable? Over a working lifetime, will it still make financial sense for people who would have relatively short but highly paid careers (e.g. doctors and dentists)to invest in their training and qualifications?

  • Comment number 31.

    23 - The estimates of the actual cost after everything works through vary, between £90 and £200 bn. £130bn is the figure the government have gone with.


    It's nothing compared to the gap in funding for public sector pensions though. And that number is not even included in any calculations for the debt of this country. So whenever you hear 'debt of 79% of GDP', add a good chunk more.

  • Comment number 32.

    Dammit!

    I won't be able to upgrade my Sunseeker yacht and Bentley car until next year!

  • Comment number 33.

    I find the whole situation totally rediculous, I cannot be the only person that took a quick look and said that houses were going up far faster than earnings and it was all out of kilter (2 years ago). I even double checked on the banks websites and the graphs showed the boom and bust cycle and that we were heading there. I am no financial guru BUT Gordon was supposed to be the ultimate after all he had the purse strings for the Country.

    Now the hard working people of the Country have to pay for it!

    I was given a book Gordon is a Mor on and I really think everyone should take a read and realise that theres a lot of truth in that little book.

    The debate on the high earners is a no brainer anyway, most will avoid Tax with consultants the rest will sack a few lower level staff to pay for the needed 10% pay increase and thus increase the unemployment.

    Thanks for the false hopes and failed promises Labour!

  • Comment number 34.

    Could it not bet that the 50% rate is neither "an economic necessity" nor "a return to Labour's 1980s ideological view" but just plain populist politics.
    The idea that the few rich folks got us into the mess and should pay for us to get out - is the only hope they have of getting anywhere in an election - never mind the fact that it may not actually help in slightest as you imply.

    I don't see that as ideological, other the usual ideology of "mislead the public so we can stay in power."

  • Comment number 35.

    "14. At 11:49am on 24 Apr 2009, chrisbob99 wrote:
    What is needed is something radical, right now, not half hearted but full on. Something as radical as privatising the NHS,"

    Strewth, that would really work, just privatising the cleaning rid us of loads of folk, not workers, but patients who contracted all sorts of nasty things that sound cleaning would have prevented.
    Privatising the whole issue could dramaticaly reduce the elderly and sick population, just think of all the saving on pension payments for a start, wonderful stuff, you really should have that idea in the next Labour manifesto.

  • Comment number 36.

    More tax on high earners is the wrong approach. It just means that proportionally more of an organisation's wage bill will be given to the clique of people at the top. Next years pay rise will make sure they come out ahead even after the tax. The people at the top need to get paid less not taxed more.

    The government will make more tax from an organisation where the wage bill is skewed towards a few high earners paying 40 or 50% tax than one where the the same total pay bill is distributed more evenly. Maybe thats why they like the banks so much - let the city exploit the rest of the economy and pay themselves huge salaries and government comes away with more tax than if the money had stayed in other parts of the economy.


    The government should set an example by putting an upper limit of say £200K on total compensation in the state sector and cancelling all bonuses until the budget is balanced. They should also stop managers using early retirement as a way to make people redundant.

  • Comment number 37.

    The budget will not define our politics for one moment. The budget merely stated the size of the financial crisis facing this country since the banking crash of October 2009. This event completely wrong-footed an administartion already running a substantial spending deficit. This deficit then ballooned as the consequences of the banking collapse quickly spread through the economy.

    it is true to say that this will have a massive impact on the country. My parents and grandparents were still talking about the Great Depression of the Thirties in the late Fifties.

    Theer are two political debates to embrace, not one. The first debate is how to deal with the crisis itself. The second debate, and perhaps the more important one, is how do we go forward economically and socially from now on.

    I dispute your argument that spending cuts will mostly fall on the poorest. Are the poor on public sector salaries of GBP 75,000 to GBP100,000 and a final salary pension? No, we can have cuts that need not make life any worse for the poor.

    You then drag up the old fear of Thatcherism. Say what you like about her but she won three general elections in a row with her direct appeal to the natural puritanism of the British. I think such hair-shirted ascetism, sincerely held and expressed can produce surprising political consequences.

    The increase of taxes on the better off seems to me to be in one way a sop to the significant disaffected elements within the Labour Party and in another way a cynical ploy to soften up public opinion for the prospect of more direct taxation.

    My view is that the people who were running this country up to 2007 were an idle, incompetent, self-serving bunch of fools who either conned or intimidated the country into subservience to their perspective. I include in this the political class, the bankers and many parts of the media. The list is long and includes many of the great and good. If there is anyone who should be paying the price it is these people. Yet I do not see them suffering from the budget. There need to be spending cuts and there need to be criminal investigations.

  • Comment number 38.

    29. At 12:21pm on 24 Apr 2009, fragmeister wrote:
    "Surely the only fair system of taxation is that everyone is taxed equally - say 25%. Rich or poor, you pay the same proportion of your income. Progressive taxation is not about fairness but about assuming people with more money should pay more than people with less. In other words, envy."


    Utter tripe. The poor spend the majority of their income on things that are unavoidable or essential such as rent, utilities, council tax etc so taxing them the same as the rich puts a far greater burden on them than it does on the rich. That's why we have progressive taxation in the first place - to address the fact that flat taxes were unfair.

  • Comment number 39.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 40.

    #9. goforit99

    Here comes the wailing and gnashing of teeth eh? Just pay up and stop whining. We're all under the cosh here. It's just that your slice of the pie is bigger than most others, so you get the honour of chipping in more. Fair deal really. When I get to the top levels of pay - as I will - I too would expect to have to dig deeper than those with MUCH MUCH less to spare.

    Oh and don't start blubbing about how much hard work you have put in OR how you resent dole scroungers getting cash for nothing. They're both extremely repugnent types indeed: One group likes to get it's fat little fingers into the big money pot and this type HATES letting go of it - the other are the bony fingered little layabouts that will lie and steal to get far more than they deserve. They hate EARNING IT.

    The vast majority of us sit in the middle and we can just about get by, so hearing rich people moaning that their nett household income is only 50k+ is a real kick in the teeth and garners no sympathy when the tax man finally comes-a-knockin.

    So....

    How would you like to pay?

    Cash or Cheque?

  • Comment number 41.

    Having read on another Blog, familiar to most of you, The Chancellor is proposing a "SUCCESS TAX"

    Mmmmm, not a brilliant idea, is it AD?

  • Comment number 42.

    People who make £150K are overcharging for their services. The only people who make that kind of money and provide a handy service are the dentists. Give them what ever they want - it's horrible work.

    But go after the others by all means. I won't notice they've gone. In many cases, we'd be better off without them, because most don't provide any service worth having.

    Those (like me) with worthwhile trades (plumbers, electricians, railway workers, shoe makers and carpenters etc.) don't make this kind of money. Go after the toffs, not us, and give us their money. We deserve it, not them.

  • Comment number 43.

    "Which in turn implies that the 50% rate is less of an economic necessity and more a return to Labour's 1980s ideological view of fairness in taxation, that taxing the rich is a good in itself for the way it closes the gap between rich and poor."

    Tut, Tut, Robert - you seem to have forgotten your elementary economics lessons.
    Taxing the rich at a higher rate than the poor isn't rooted in socialist considerations of closing the gap between them but in considerations of fairness.
    This itself is rooted in the concept of the diminishing marginal utility of income.
    Just to remind you - if a man if earning £100 a week and is taxed at a rate of 10%, the loss of £10 will bear down far more heavily on him than that same tax rate of 10% applied to an income of £1000 a week.

    Putting a relatively heavier burden of taxation on the rich meets the need for equity.

    I never used to believe for one moment the countervailing argument that rich people will work less hard or less efficiently because of their higher tax burden. Their performance is driven by considerations of professionalism, status and power.

    This week's argument that there will be a brain drain because of the higher rate of tax is fatuous in the extreme. How many top jobs in overseas banking, finance and industry are just waiting to be filled by expat Brits in this time of international economic crisis?

  • Comment number 44.

    What I find most incredible is that in the latest poll Labour still has 27%! Who are these people? Do they need to see the country on its knees before changing their minds?

  • Comment number 45.

    Of course if some super rich people leave the country in the mythical world that is Lab stats that will in fact reduce poverty (because it reduces the average wage earned by a UK worker and poverty is defined as less than 50% of average wage).

    There are some taxes which are designed to change behaviour (landfill tax, taxes on cigarettes and alcohol for example) but leaving aside those I thought the purpose of tax was to raise revenue to enable govt to spend it on their policies. If increasing tax rates actually reduces the revenue raised it makes for gross stupidity by govt (no great surprise then).

    The best form of tax is the simplest to collect and raises large amounts without people really noticing. Putting it simplistically it is easier to raised £10 per person from 50 million people than £500 million from 100,000 people. Best solution would have been to increase VAT to 20%

  • Comment number 46.

    Seems to me nothing more than old fashioned class warfare and the politics of spite and envy.

    I'm far from super-rich but figured years ago that if an accountant costs me less in fees than he saves me in taxes then he is a good thing to have on side. Which is exactly what my accountant has done.

    As things stand now I'm more interested in making enough money to keep my life the way I want it. There's no point working all hours to get ahead because all it means is that I take a huge risk and the government takes most of the rewards. Just for good measure along the way I get an ever-rising burden of forms to fill to keep the box-tickers happy.

    No, this move is so unbelievably short-sighted I'm amazed it hasn't been shouted down from all corners. The rich will move their income around, the poor won't gain anything and those in the middle get hit, again.

    Once again Labour prove they would rather have 50% of nothing than 40% of something. Nice one chaps. Roll on the election.

  • Comment number 47.

    Of course "the rich" doesn't really mean those on high income. It primarily means those of high net wealth. How about a one-off wealth tax - say 30% of all personal wealth over £2million. I'm sure that would pay of all the debt the Government has built up, and those taxed probably wouldn't even miss it.

  • Comment number 48.

    #14 Chrisbob99

    You cannot seriously believe that a privatised NHS would offer better service at lower cost. Privatisation was sold to us on two false premises (a) That management for profit leads to innovative practices and investment that result in reduced costs; and (b) That competition will constrain the management of these businesses to pass on a fair proportion of the savings to the consumer.

    Has this worked anywhere?

    My experience may be atypical - and I would welcome condradiction - but I suggest that for the most part we have seen a ruthless pruning of service quality in pursuit of profit. This is particularly true where the service is being provided by a privatised monopoly selling the service to the Government ot Local Authority: but even where there is a theoretical choice of an alternative supplier the utility companies are pushing up charges and erecting all sorts of "barriers to switching".

    It's enough to make me nostalgic for the days when the public utilities were meant to provide a public service. It may have been imperfect, but the ethos of "public service" had something to offer that has been lost in the Brave New World in which economic outcomes justify means.

    We were sold a pup - all in the name of keeping the cost of these services off the public accounts: and all that did was free up Government(s) to spend us into the current mess.

    Life is a 'one-way-street' and there's probably no going back to a World of public service for the public good. But if you do not ask that of the public services then why expect it of their managers (the Government)?

  • Comment number 49.

    "No more boom & bust."
    "A weak currency is the sign of a weak government."
    These are comments, declarations even, made by Gordon Brown.
    He has failed, and miserably so, on both counts.

    My problem with the budget, is less so its content, but more with the fact that its such a negative, counterproductive and punitive one - for the country (i.e. its inhabitants / taxpayers) as a whole - was even needed.

    Over the past 10 years or so during which there has been consistent economic growth, it transpires that the government saved nothing for a rainy day. The problem is exacerbated by the fact its not raining, theres a devastating monsoon overhead!!

    About one-quarter of Mr. Browns income is generated from the city. The very bonuses and salaries from city folk who have been in the large part incorrectly been laden with blame of this crises were going (40% of them anyway) straight into GBs (not Great Britain, but Gordon Brown) wasteful hands. The revenue from the city not only fell this year, but given the bailouts of / injections to RBS & Lloyds amongst others, the city bit GB on his ever sagging derriere.

    So his response Ill tax high earners more.
    Thats just feebly counterproductive. And no, I do not earn £150k, nowhere near. Its counterproductive because it sends out the message: if you succeed in life, we will tax you more

    The problem is not a bad budget; the problem is a bad, weak, counterproductive and incapable government. And to top it off, GB wasnt even voted in by democracy. He assumed power from smooth-talking Tony, promising you and I an election, then bottled it because he has a spine made of jelly and knew there was more then a small chance hed lose.

    So now, we have a prime minister who wasnt even voted in by the people of Britain and who is in the process of bankrupting Britain today, and burdening Britain with debt for years decades to come.

  • Comment number 50.

    It seems that every day something new pops out to lower still further the rock bottom view of Brown's competence - what is below rock bottom? As I reflect on the Budget only two possible explanations come to mind - can anyone think of any others?

    1. Brown/Darling genuinely believe that the huge structural problems faced by the UK can be solved through a few efficiency savings (which may not be real or alternatively why have they not been obtained already) and raising more tax from the richest 2% of the country.

    2. Brown/Darling have cynically and selfishly acted in a political manner, against the country's best interest, to avoid tackling the problems now. Using the very highest (but implausible) growth forecasts (that have already come unstuck) has enabled them to duck, until after the next election, the tax and spending pain that has to come.

    Given that Brown/Darling do have brains, explanation 2 sounds more plausible and implicitly acknowledges that they accept that the structural problems can only be tackled with the mandate given by a general election. However, waiting a year will only worsen the position. Come on guys lets have the election now so that re-building can begin. Is our only hope that Labour will be completely decimated in the forthcoming local and European elections, leading to a vote of no confidence in Brown by Labour MPs?

    Months ago I said on one of these blogs that we need a statesman to come forward and lead us through the mess. By definition a statesman would be honest - and we need bucket loads of honesty now. If we end up with spin (whether political or for any other reason) we will simply make ill-informed and wrong decisions. We need to have a proper debate on (i) what public services can/have to be abandoned and (ii) what industries are going to rise up to fuel the new world, and how we nurture them. Both of these are needed - one only will not be sufficient.

    There is no question that there will be a lot of pain which will have to be shared out until re-structuring has been achieved successfully. 50% top rate tax on the "rich" is a given (albeit preferably without the stealth tax add-on items that actually increase that burden to 60% or more). But so too must there be more pain for the middle and lower classes in the form of higher basic rate income tax and/or VAT and reduced social welfare. Unions need to be brought on-side immediately to prevent strikes seeking to influence how the pain is shared. Stopping the accrual of public sector defined benefit pension scheme rights seems to be a given as well.

    The government that properly tackles public sector efficiency should probably employ Fred the Shred to lead the charge against waste. Some big cuts seem obvious, such as ID cards and Trident, others will be harder to find. It is quite ridiculous to read stories such as on one of these blogs a few days ago that the NHS employs agency nurses at a greater cost than full time staff because the cost goes to a non-staff cost line which is subject to less control.

  • Comment number 51.

    Many many high earners are addicted to money. They will find more ways of getting it and reducing how much they pay to HM Government. With the news that action is to be taken on tax havens, will we see a rise in tax evasion.

    Many sit on the boards of companies and could just give themselves bigger raises (as is the norm).

  • Comment number 52.

    I think the judgement that the 50% tax is a return to old labour is an easy but flawed argument to make. The new tax is claearly a gesture to appease public opinion (born out by some polls this morning)rather than a means to help pay off a substantial part of the debt. Brown/ Darling will have calculated this as they will have been aware that it would be likely to generate such a small income.

    Rather than a return to old labour, what this reminds me most of is the cynicism and ineffectiveness of the dying Major regime in 1997. The Tories are likely to get in but dont make the mistake of thinking that the approach they produce will be any more clear cut and dynamic. It will be exactly the same type of shuffling, dodging and generally trying to avoid bad public opinion that is displayed by this lame duck labour administration.

  • Comment number 53.

    Clearly New Labour is dead. this is the return to the bad old days.

    Who do the government think creates wealth? We need business men and women to be willing to take personal risk in order to grow the econonmy. This is different from investment banking type risk. It is not just investment bankers who earn 6 figure sums. The amount these taxes will raise is a drop in the ocean (of red ink)compared with the amounts that will have to be paid off by the government.

    This is a populist proposal that aims to act as a smokescreen to the real issues. I heard that we will all be paying extra NI from next year. That is a tax on the many. Don't be fooled and don't get embroiled in the Labour politics of envy. Gordon, Alistair Harriet et al have now been exposed for what they really are.

  • Comment number 54.

    It's uncannily like the late 1990s, Labour having been totally progligate with our money, and unable to see a disaster coming now find themselves in a position which could rapidly spiral downwards if the credit rating agencies downgrade the debt we are very likely to have to go to the imf who will impose stringent conditions on lending (I hope).

    Labour inherited a buoyant economy in 1997. All Brown had to do was stick to the same principles, and not spend too much.

    He also should have created a sensible regulatory structure for the City, not the mess which existed where nobody took responsibility and the FSA was hopelessly out of its depth. Either that or the government should not have abrogated its regulatory responsibilities.

    The electorate will not forgive this level of debt

  • Comment number 55.

    I guess one other question to ask is why we always have assumptions that public sector workers are socially useful.

    I don't think anyone would argue that cutting nurses, teachers, firefighters etc is a bad thing. But how many public sector IT projects can we cut without even noticing? Think of the ID card project, reckoned to cost many billions. The new NHS network doesn't work and has soaked billions. We have an army of assorted "outreach coordinators" etc who do nothing of any consequence. Let's cut the dross out of the budget, hire some useful frontline staff with some of the savings, and end up with public spending cuts at the same time as hiring more nurses.

  • Comment number 56.

    Also I'm very dubious about these figures being discussed regarding Government debt. The bulk of this money has been used to re-capitalise the banks. The Government doesn't need to borrow to do this, and therefore doesn't need to pay any debt back again. They could just as easily just print money, give it to the banks in return for Shares and then order the banks to deposit the money straight back in the Bank of England again.

  • Comment number 57.

    For Brookyb (#44)

    "What I find most incredible is that in the latest poll Labour still has 27%! Who are these people? Do they need to see the country on its knees before changing their minds?"

    Count me in among the 27% of people who will still vote Labour.
    In spite of their undoubted mistakes, the Labour Party is the only party for ordinary people.
    The Tories, once they've got their feet safely under the table, look after THEIR people - corporations and the rich and privileged.
    God help the poor, the schoolchildren, the sick, the old, the unemployed and the ordinary family if they ever get back into power.
    The Tories shouldn't be allowed near the Health Service or any other aspect of the Welfare State.

  • Comment number 58.

    Amazing that thirty years after she was elected, Maggie is still blamed for this country's woes!
    Say what you like about her but at the time she gave a great many people vision, hope and opportunity to get on in life and realise their dreams and aspirations.
    She also took no s**t from any other world leaders and was directly responsible for the thawing of the cold war (remember nuclear oblivion etc).
    A great shame that she can't come out of retirement.

    The way things are going I wouldn't be surprised to see a return to the 70's complete with power cuts, three day week, rubbish piled in the streets, fuel rationing and the dead unburied.

  • Comment number 59.

    Osborne is a joke. Does anyone think he would make a good chancellor? Managing 'The Pudding Club' in a episode of Midsomer Murders is about his limit.

    The markets are climbing in response to Alistair's budget. Confidence is slowly returning. House sales are up and retail sales are responding well. Everything is on track for the May 2010 election in May 2010. Not sure about what happens after that, but who cares anyway?

  • Comment number 60.

    Window dressing.

    Assuming a normal distribution of earners and levels of income, one has to get in about the middle to generate the cash from taxation. Bashing those at the margin is bad for the poor, bad for the rich, but we quite like the second it would seem irrespective of the route to riches. It certainly distracts from the wrath to come after this non-event.

    The books have to balance and we will at some point have to redistribute the tax cut to begin the recovery process.

    Coming soon to an economy near you, a change in tax bands a change in VAT, capital gains and corporation tax, capital allowances, a redistribution of government expenditure, reduced government expenditure (spun)/ increased government expenditure (spun) more borrowing and more pain. (As the market will not be interested and the cost will soar.)

    All of this against a background of plain sailing? No more shocks in the pipeline. I'm quite interested by the nature of trade credit insurance at the moment (Not relevant to my business.) but the withdrawal of same seems to be accounting for the demise of the odd retailer. It seems to be the type of insurance that is offered so long as it does not look like you need it, but withdrawn if you do.

    Insurance, like assets is currently wrongly priced... next apocalypse, which will mess up the plain sailing assumptions in the do nothing budget.

    Turnover is currently running at 50% now and as the month has worn on we have plumbed new depths. It's not boring!!!!!!!!!

  • Comment number 61.

    I've figured this one out!

    Labour want a "top" tax rate of 50% so they can increase the basic rate to 30% and the numbers will look nice and consistent.

    Therefore the three tax bands will 30% / 40% / 50%. Probably just after the next election.

    However, judging by the scale of the problem I don't think that the Tories could avoid a 30% basic rate. Maybe they could raise the tax free allowance a bit, but that'll be all.

    Help!

  • Comment number 62.

    One other thought. If we'd done what we perhaps should have done over the last 18 months (ie declared all the banks insolvent, guaranteed any deposits up to £35k and no more, and then re-constituted the banking system from scatch), then who would have lost out? The "rich" primarily (eg bank shareholders and those with large amounts of money on deposit). So was the bank bail-out mostly to prevent the rich losing their savings? If so then is it not reasonable that they should pay the bulk of the cost now?

  • Comment number 63.

    #59 lordgreenshhots

    Along with your very upbeat blog, I can also report a squadron of pigs has just gone over.

  • Comment number 64.

    I love how so many ordinary people think they 'bailed out' the banks. Were this the case then we would have had a budget surplus before this crisis, which we did not i.e. public spending exceeded tax income. Also I love how only the banks are being blamed. Has no one questioned why the government made such a fuss over Sir Fred's Pension?? This is the governments fault pure and simple. A very basic rule of macroeconomics states that during the good times save for the bad, something that was woefully ignored by new labour under the misguided idea that 'boom and bust' had gone. 'Boom and Bust',in my opinion, is an inevitability from a capitalist economy from which no amount of monetary tweaking can detract. This budget is a shambles and I think Mr Darling has rather ignored the 5 men at the bar economic anecdote and will pay for it.

  • Comment number 65.

    Everyone needs to sit down, shut up, suck the bitter sweetie, and get on with cleaning this mess up. In particular, those bankers and international companies have a moral duty to do more than their fair share in this.


    Those who threaten to leave the country if they have to pay high taxes to clean them up are no more than bullies. They should be treated as such. And as to the tax loop holes. Close them down. Every last one of them, now.

    Are there any adults in the room?

  • Comment number 66.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 67.

    Memo to Robert Preston, Nick Robinson and the rest of the BBC journalists covering the economic collapse, regarding your collective amnesia. Try some proper analysis of the current situation by putting it into context. The basis for everything that has happened over the past 12 months or so can as you all know be traced back much farther than May 1997; to May 1979. Who deregulated the financial markets in the 1980s, who privatised the utilities and put in place the legal framework to privatise the entire building society sector, and where are all those privatised building societies now? Who told the millions of unemployed to get on their bikes and literally abandoned them to their own devices I could go on but the primacy of market economics, the belief that small government and light touch regulation would become the norm; that essentially, nineteenth century laissez faire capitalism would be restored began with Thatcher and it didn't only permeate the political consciousness, equally as devastating it permeated the social fabric of this country with devastating effects. Literally everything that has happened in the last twelve months has its basis in that crude market philosophy. So when I hear David Cameron talk about the need for a cultural change I can assure him that it has already happened and under the auspices of his party and just look at the nature of British society today because of it. He has nothing to offer but glib soundbites and if it had been left to him last summer we would all be begging in the streets today, because he would have done very little. It is about time that you and your colleagues Mr Peston started to look very seriously at his 'big ideas'instead of having cosy little chats with him and his sidekick Osborne. For example why don't you challenge him over his continuing belief in the sort of global capitalism which is now wreaking havoc all over the world. Yes we need a cultural change but also economic change that can transform society for the better. I shall listen more in hope than expectancy to your future 'analysis' of the crisis.

  • Comment number 68.

    I earn just enough and thats it, its a lot easier to spend less than earn more and its greener too, and I know so many more people doing the same. Folks will not go back to spending the way they used to. The government will be broke.

  • Comment number 69.

    Don't know why anyone would think that the 50% tax band represents the end of New Labour. They specifically promised in their manifesto that they wouldn't do this, so to do it anyway seems entirely consistent with New Labour philosophy.

  • Comment number 70.

    If income tax is regarded as legitimate, which is questionable, then why not tax everybody at the same rate?

    After proper personal allowances, 10% should do the trick. As well as raising overall tax take, we would get a boom economy.

  • Comment number 71.

    So we're back to that then.

    Labour make a mess of the economy, grow public debt and the costs of the state absolutely massively, which to some sectors of society is great, because they work for the government.

    Then they get booted out, the tories come in and make cuts to try and remove the financial millstone around our collective necks, but are then hated for a generation by people who depended on the government siphoning money from private enterprise and professional individuals to them. They then get removed for being heartless and profiteering, and around we go again...

  • Comment number 72.

    I notice Bernie has stopped at May 1979, perhaps he would like to re-work his analysis to include the state of the economy and the country in the years before that date, and then analyse the actions and decisions after May 1979 in the light of that new information?

    No?? Shame. Sounds like he has amnesia of his own...

  • Comment number 73.

    23. At 12:02pm on 24 Apr 2009, adamski0305

    Doh!

    Haven't you learnt by now...that profits are always privatised and debts are always socialised...as far as banks are concerned.
    Maybe that's why they are called a socialist government.

    Moral Hazard! ho ho ho ;o)

  • Comment number 74.

    No 57 Noninflatable

    "God help the poor, the schoolchildren, the sick, the old, the unemployed and the ordinary family if they ever get back into power."

    Exactly. because of the total mess that NuLab will leave that is what will happen.

    NuLab will then blame the Tories for the mess. A typical response from the usual electorate who like to spend spend spend the result of other peoples work.

    Yes you are right " God help the poor, the schoolchildren, the sick, the old, the unemployed and the ordinary family"
    PITY YOU GOT THE CAUSE WRONG !!

  • Comment number 75.

    Re 67
    Try as you may to blame this all on the tories, you forget that Labour has been in power for 12 years. Labour could have reversed all or any of the policies you don't seem to like. Are you suggesting that Labour has had its hands tied by the previous tory administration? If so, please explain how.
    The basic difference between Labour and tories is that, every singlre time labour gets into power, it spends all it can. Sometimes, this creates problems quickly. Sometimes, it takes longer. We have in power now a Labour party that was running a government deficit even after 10 years of growth. This is just crazy and has left us all exposed to the debt mountain that now confronts us.
    We are now into a twenty year period of clearing up the mess created by this government. Blaming the previous administration, retired in 1997, is absurd. There was no mess to clear up in 1997. There is now. Live with it - Labour has utterly failed.

  • Comment number 76.

    These poor little mites having to pay a bit more tax. If there only earning £150,000 p.a., they'll now only be earning in excess of £7,000 per month. How on earth are you going to survive ????!!! No doubt they've got accountants who'll make their tax liabilities disappear anyway.

    They want to move abroad - go ahead, good riddance !

  • Comment number 77.

    I'm not a banker but I do earn over £150K. I'm happy to do my bit but;

    My kids go to private school - so I don't take anything from the State
    My family all have private insurance - so I don't take anything from the state.
    My house is in the highest band for local taxes.
    I live in the country with no street lights, badly maintained roads, bi-weekly refuse collection and a police force that when you ring them decline to come out to see you because its too far.
    I pay more tax when I fly, more tax for my fuel and my attempts to save for the future by being a good citizen and paying into a pension are also now being hammerred.

    I know I'm lucky and I know I'm in the top 2% but enough is enough. An unelected Scottish Prime Minister with his Scottish Chancellor are making decisions that will affect my future and that of my kids. Give the people the chance to choose who they want to run the country now, rather than use fear and uncertainty to manipulate the next election.

  • Comment number 78.

    Why do we continually debate these issues as if we are the only country in this situation? Where's the international context in any of these comments? As I understand it, other economies such as the USA, are investing at equally high levels and presumably will therefore have similar levels of debt to pay back. Some European economies such as Germany are unable to invest as much because they already have massive levels of borrowing as a % of GDP. We're not alone in this world; we all criticise the Americans for being parochial but we're as bad.
    In the USA they call it the "stimulus package"; here we call it "the massive debt burden". I know it's a matter of semantics but at the moment we're in tough times and this investment in the economy is being done for a purpose but you would never understand that from the overwhelming negative coverage in the media. We've got to the stage in our media's coverage of events where the government's efforts are just swamped by the slurry of negative catcalling. The only thing missing is any form of practical ideas about what the critics would do instead.

  • Comment number 79.

    It didn't take long for your lack of journalistic skills to look back all those years to drag Mrs Ts name up in a negative tone.
    What Mrs T actually did do was to put the UK back on the world map as a serious player, in every sense. Whatever your politics might be it would be great if you could engage your brain objectively and give us some real reporting.

    This governmnet have had a really easy ride from a benign media who were not up to the job. The Labour party has wrecked this country in such a short space of time. THey have cut our liberties, spent our money, put us into intolerable debt, and also cosied up to the very people who sang the same song. They told us what a good job they were doing, continue to do so, and you all followed unquestioningly like lemmings.

    I now a pensioner, having worked hard and never claimed any benefits, will spend my retirement much poorer in every sense. What I have is and will continue to be devalued as we get further into this recession. During this time there will be no value added to the services that I have paid for and will be unable to benefit from as I grow older. That is the reality of Labours 12yrs in power, unchallenged because of a vast majority in parliment and excused and unchallenged by the media on everything.

    That is the real tragedy. We are not just financially poorer. Our society, culture , NHS, education, infastructure have all been manipulated adversely. Those who have contributed througout their working life have been taxed in every way by hidden taxes, so what do I care that they feel they will gain points by taxing the highest earners a bit more. It is just a gimmick, it will appeal to the rabble and produce very little. We at the other end of the scale will pay dearly for all Labours mistakes, they will retire with their nice penions, and without a care for the rest of us in the future.
    I look about at the current government and find myself uninspired by any of them. The in word of the week is easy to spot, currently is the RIGHT thing, trotted out at every opportunity. Do they get a list each week with instructions on what to plug?

  • Comment number 80.

    I confidently predict economic growth of 3.5% in £149,999.99 salaries.

  • Comment number 81.

    Why are we allowing Social Services to drain the country of 45% its income. Something has gone horribly wrong and it isn't solely down to immigration.
    The psychology of large tranches of the population have been driven or trained to live off the state and bolster their incomes in the black market.
    What is worse I can see this being the biggest risk to the economy in coming years as tax revenue falls and spending in this area rises with increasing unemployment.

  • Comment number 82.

    This is very simple really, the World economy is down, the UK is ill prepared and in the worst position of all. The Government are to blame for the lack of preparation and the lack of resources to help get the country out of the recession. The ship is sinking and a few pence on the rich won't solve the problems. The 50p rate is clearly a political move, but wouldn't it have been more interesting if tax was reaaly used to also drive behaviour. What if you were given 5% or 10% or twenty 20% off income tax if you drove an emmissions free car, or your house was given the top rating for fuel efficiency/ sustainablility? All those city folk would be driving around in the latest fuel cell or battery car to save on tax and living in eco pods.

  • Comment number 83.

    Hear hear No.67 ! The seeds of this disaster go back much further than the likes of Messrs. Peston or Robinson will ever admit as it goes against their fundamental right-wing/right of centre outlook.

    Hindsight is a wonderful thing, and I haven't yet heard a single person, neither an MP nor a journalist, come up with a coherent grand solution to the crisis. Any ideas anyone ?

  • Comment number 84.

    Now I'm no economist, but it seems to me that what the government seems to have forgotten in all this mess is that they have a distinct need for cash to pay back debt.

    As it happens, there are a significant number of people in the UK who actually have cash. So here's my whacky proposal: let individuals in the UK 'invest' in future tax relief. Say John Doe pays a bond to the government of £1,000 now: this would entitle said individual to, say £1,500 worth of tax relief over the subsequent (say) 5 years (i.e. £200 per annum). The numbers would need thought to get the balance right, naturally.)

    The maximum value of this tax relief would also be linked in some way to the UKs overall national debt - if the debt gets less, the tax relief increases further: the reverse would not apply though, so investors would guarenteed a minimum return of £1500. Further, if John Doe pops of the mortal coil, there's no rebate (so that's the risk he takes).

    By doing this the government is effectively using the UK tax payer as there gilt provider, rather than large foreign investors, who will demand high interest rates, and we find a way at least to reduce the national debt *now* to reduce the cost of servicing it.

    I guess it probably shows that I'm not an economist ....


  • Comment number 85.

    I am always amazed that wealthy earners are always able to commission and produce so called impartial reports that confirm that taxing high earners is a bad thing and has a negative impact on low earners. Who represents the lower earning population in this debate?

  • Comment number 86.

    Perhaps if most of those earning over £150000 were worth it I would have some sympathy.

    However I have been around such circles long enough to appreciate most who earn such sums do so not because of their current output, but because of luck, "reputation" and networking (namely sucking up to those further up the food chain).

    Look at two examples - Goodwin who on the basis of early achievements was allowed to ruin RBS, and Grade who promised so much but has presided over a disastrous decline in ITV's share price and finances.

    Few will leave the UK because of this tax rise.

    The majority of the population support it - with an imminent election that's why Labour is finally doing something, even though it's little more than a token, about fat cats.

  • Comment number 87.

    Gordon Brown simply couldn't resist showing his true socialist colours before he was kicked out.

    Labour's scorched earth policy will leave some tough decisions for the Tories. Getting rid of the new 50% tax band will if anything increase tax receipts and reduce avoidance.

    The NHS should (but will not) be the next port of call - a £5 charge for all GP appointments for a start for those in employment. Plus of course scrapping the entire tax credit system and helping only those that really need help.

  • Comment number 88.

    #55 ThoughtCrime2008.

    In similar vein.

    I wonder how much has been wasted up front on the Titan Prisons on consultants etc. who will now be re-engaged to do the same for the smaller replacement prisons which also may not see the business end of a bricklayer's trowel.

    What a game, what a waste, what posturing.

    In much the same way as the lid was kept on the inevitable economic bust, thereby making it worse, electoral unrest is being suppressed and will only result in a greater reaction.

    Election now please before it is too late, you do not have a clue.

  • Comment number 89.

    I never went to a grammer school although I tried my heart out, was in the thickies stream, but it gave me an aspiration to work too and I did.
    had to go via collage. many teacher (whom NUT would not allow to be sacked) held me back but I won beat them hands down.

    So I hope that they start building more grammer school so that more children can get a good education rather than a dumbed down one.

    #67 yeah and the 79 problems can be traced back to Denis Healy, Wilson and Co, oh yeah the labour party. tax tax tax spend spend spend,

    History has repeated itself *10. though.


    it was thatcher that brough the 1989 Children act, a master piece of legislation. But the socialist turned that into a father bashing charter, that has wasted £50+ billions since 1997, in there attempt to bury fatherhood

  • Comment number 90.

    There are so many problems we are facing, why on earth dedicate an entire column to the travails of people who earn a lot having to live on a bit less? I would guess that of those high earners that are sufficiently motivated by the "devastation" that is shortly to be inflicted on them to up sticks and leave the country, a very significant proportion will be of the shyster financial services variety that we should be all too happy to see the back of. Focus on the things that matter, Robert ?

  • Comment number 91.

    I think Robert you, and many others, are forgetting a vital indicator of economic future well-being, the ''Chancellor's Squirm''.

    In previous budgets, the maximum angle of incidence from the Chance-llor's arm to the ground, when holding the Budget briefcase aloft for the obligatory photo, is an accurate forecast of the numbers contained within.

    This years figure is the lowest angle of incidence for several years.Indeed, as can be seen in the photo above, of the occasion, the Chancellor's arm is so weighted with troubled thought, that the arm is actually unable to hold a ''straightened position''.

    I look forward to your thoughts on BBC 6 O'Clock News tonight on this ''revelation''.

  • Comment number 92.

    "86. At 1:53pm on 24 Apr 2009, whatevernext1 wrote:
    The majority of the population support it - with an imminent election that's why Labour is finally doing something, even though it's little more than a token, about fat cats."


    Well it might get the vote, but its simply the politics of envy. Of course those who support it feel that the population, or a majority of them, would support it with them, but in real terms its just striking at an easy target. However, there's a middling to good chance it could all backfire. I would have preferred to see something workable to improve the British economy, but it wasn't there and I think we're stuck with the state its in for a long time, thanks to Gordon.

    Perhaps we should vote Gordon and the rest of his small-town cabinet back in, as punishment.

  • Comment number 93.

    Apatters. My heart bleeds for you but as other bloggers have said suck it up and pay the tax. Just because you do not use the services does not mean you do not have to pay for them.

    67

    I agree entirely. Once Osborne, Cameron and co get in it will be worse not better. Heard Cameron say this morning "we can't afford fiscal stimulus" if you read a Nobel prize winning economist Paul Krugman, the real answer is we cannot afford not to undertake the stimulus. The swingeing cuts in public serices and jobs that will come with a Tory government will lead us furhter down the path to depression. If you look at the USA fiscal stimulus is seen as the only game in town, if you look at lots of Europe there are limited packages of the US and UK type being rolled out.

    These are international responses to an international problem. If you read your economics 101 textbooks you will see the solution to where we are now is a Keynesian not a Thatcherite Josephian Monetarist one that will lead us further into the abyss. Yes debt is at a historic high and it will need to repaid, but a catastrophe on this scale has not happened before. Banks are integral parts of all our lives, we have mortgages, credit cards, bank accounts, businesses small and large use them for finance. If the system was left to fall over the ramifications would have been far worse.

    The truth is as this is unprecedented, there is no right answer and we are all groping the dark. But a stimulus package is better than letting the economy contract even further.

    The only way forward at the ballot box is a hung parliament, with Vince Cable for Chancellor in my view. This no time for the tories, who in Camerons most recent soundbite, fundamentally misunderstand the situation. Withdraw the stimulus and cut spending watch Britain go down the toilet for the next 20 years.

  • Comment number 94.

    For Apatters:

    "I know I'm lucky"

    You are.
    Very.
    Pay the extra tax and be glad you're earning so much that you have to.

  • Comment number 95.

    When 'New' Labour came to power in 1997 there was one administrator in the NHS for every ward. There are now five. 750,000 new public workers have been employed since 1997. It's hard to find a job in the Guardian on a Wednesday paying under £20,000 p.a.

    All have gold plated pensions.

    We are all equal but some are more equal than others.

    The natives are getting restless.......

  • Comment number 96.

    This article all seems rather repetitive and merely serves to increase complacency. Stating the 'bleeding obvious' serves a purpose, but only so far. We must all be allowed to remain utterly outraged at this government for their completely falling asleep at the wheel. More than ever they look like they are sitting on the roller coaster (at the front) there is little support for their claims to be able to control it.

    I almost feel like a victim of identity fraud listening to how much money the government is borrowing, supposedly in my name. But actually it's worse than that as I will have to pay it back...can I pay an insurance premium to anyone to avoid the liability? If not why not?! [No doubt GS are on it.]

    Yes this is a global market and regulatory action was influenced by multinationals etc etc but its simply not good enough. You were responsible, you must remain responsible and please at least attempt to remove politics from economics in such difficult times.

    I'm simply appalled at the state of our government. How was this all allowed to happen? Regulatory light touch and arrogant complacency by all, including the opposition- they could and should have shouted louder if they believed their views, if they even held them. Enough with point scoring on the economy please, it is simply too serious and we can all see that none of you know what you are doing. Is it any wonder that younger people switch off to politics and have such an apothetic regard for politicians?

    We must however have an exit strategy- how to repay the debt and square the books. We will not be assisted via North Sea oil and gas as previously, we've already used most and sold the rest. And we've spent the money in case you were wondering. We must therefore look elsewhere and at least partially that means hitting the baby boomers who have lived as a generation of privileged wealth accumulators in ways that younger people now can only aspire to. The gap between 'rich' and 'poor' is perverse and is exacerbated by many of the 'rich' not even realising their own position on the scale.

    As to tax, of course it is right that those earning more should be taxed more but any tax must be effective. The aim of increasing taxes, rather than politically impressing Joe Bloggs before the election, but increasing revenue, must not be forgotten. The 50% tax is overdue but is almost entirely a red herring designed to appease the man on the street. The political effect grossly distorts the economic reality of the impact it will have, and the additional income which will result is paltry as you say.

    However, tax in this country is unnecessarily complex and desperately needs updating. Close the loopholes and look once again at a 'one rate' system if it will bring more money in.

    Finally, the government/people must receive a significant premium from anyone (bank) receiving a bailout. The burden appears limitless, therefore the benefit should also be without limit. If banks do not like being charged fees they weren't anticipating and didn't think they had signed up for they should read their own terms and conditions.

    The irony is sweet.

    Repaying the national credit card will take time and will involve difficult decisions. We may not be able to afford new toys as we look in the shop window (trident), and we should save on unnecessary expenses (M.P's second home allowances and 'advisers to the PM's kitchen' type roles) but if we knuckle down we may be able to keep the house.

  • Comment number 97.

    I think a lot of people are missing the point about "paying back" the increase in government debt. The truth is this is only necessary if we want to go back to the status quo ante. But we don't, do we? Government debt is increasing as bank credit collapses, to fill the hole in the economy left by the lack of money and credit. The increase in government debt (that is, credit to you and me) is *welcome* and *necessary* to avoid the alternative of massive deflation and unemployment.

    In future if banks are more regulated and are less leveraged, then the level of bank credit will be permanently lower, and the level of government debt/money permanently higher. This is not a problem; this is in fact a necessary part of the long-term solution to the banking problem.

    Don't panic.


  • Comment number 98.

    Why tax the rich? Because with an income of £15,000, I end up with about £120 a week but with an income of £150,000, I would be privileged to have something like £1500 a week.

    As you can imagine, I can only just afford to buy the food I need, pay for heat, water and somewhere to live and then hope to have enough left over for travel costs and maybe some new clothes or a little treat. I work hard for my money. I like my life. I appreciate the UK welfare state which has provided me with good health and a great education. I hope one day to earn more but I appreciate that, at least I have a job that pays the bills and that the (relatively) small amount of money I pay in taxes goes to continuing this privilege for others.

    The idea that I should feel aggrieved if an extra 10% of my income OVER a threshold of £150,000 goes to help people worse off than me is obscene and abhorrent. This kind of ideology is absolutely an infection still within out society from the Tory government of 1979 to 1997. Stuff anyone else, as long as I have my extra ten pence in every pound. I mean, £1500 a week (let alone the other untaxed 50% I get for every pound over £150,000) just really isn't enough to live on, is it?

    Personally I wonder what you are all bleating on about? Look around you? This isn't the 1930's depression. Can you see the cardboard box cities of Thatcherite London? Do you see the rich going without? No. Most of us are better off due to the lower interest rates. Money is being kept in this country because of the weak pound and flooding in from abroad, for the same reason.

    The only people really suffering are the small percentage who have been made redundant - often by bloated COMMERCIAL (not public sector) companies which have been run inefficiently for years OR by COMMERCIAL companies using the current 'media crunch' as an excuse to cut costs and make even more profits. I feel for those people. Their lives are precarious, to say the least, but the rest of us have clothes on our backs, nice places to live and a plethora of luxury goods our grandparents, suffering from post war rationing and housing shortages, couldn't have possibly have imagined.

    I truly feel sorry for the people that regularly post on this blog, bemoaning the state of their comfortable lives. You will never be happy, do you realise that?
    xJess

  • Comment number 99.

    We're entering the era of "cost-shifting".

    'Cost-shifting', of course, has gone on for ages between public services, e.g. a hospital trust closes a long-stay ward and thereby 'shifts' the cost of the care of those patients to the local authority's social care budgets by discharging them into the community.

    The 'variation on the theme' now will be that the public sector will increasingly try to cost-shift to the voluntary sector (i.e. unpaid or only expenses paid, vounteer workers) and directly to the public (i.e. communities) more.

    For example, you may have noted the story where certain rural parts of Scotland, in response to a 999 call, won't have a professional paramedic service showing up ahead of an ambulance, but will have a volunteer first-aider (called First Response) instead.

    Just keep watching, over the next few months, as more and more public agencies are hit by "efficiency savings".

    So we'll surely move towards an economy where those who have any spare money are very likely to stash it away for the metaphorical "rainy day" as they won't feel confident that they will be able to rely on public services. (And they already don't trust banks and insurance companies very much!)

    Poorer people (and the more vulnerable), of course, will just have to get on with their day centre / library / luncheon club / swimming baths / school bus service becoming less and less resourced, or closed altogether. It will probably effect most services, e.g. education, health, social care, road repairs, planning services, leisure and art provisions, etc., etc.

    And, "but we've no money in the budget" will become a mantra not unlike, from a previous era, "there's a war on, you know".

    It's already happening - I heard a Council Childrens Services spokesperson on the radio this morning saying how they'll have to work in close partnership with other agencies AND THE COMMUNITY, to ensure quality of services doesn't decline for children as the downturn progresses. What does that actually mean? Perhaps it means, people had better be more prepared to put more direct input, unpaid, into the services they want for their children, but we will provide a bit of 'professional' input (overseeing) from us 'experts' at the town hall.

    That was how I read it, anyhow.

  • Comment number 100.

    99

    And a tory government would be different? How?

 

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