Duncan’s Economic Blog

The 50p rate & the pressing concerns of economists

Posted in Uncategorized by duncanseconomicblog on September 7, 2011

The UK economy is beset by a multitude of problems – falling real wages, a consumer recession on the high street, contracting manufacturing, weak business investment, high inflation and worrying signs of trouble in the labour market. In internationally the Eurozone is in crisis, the US economy is slowing and unable to generate jobs and the ‘currency wars’ look to be flaring up once again.

So it is somewhat disappointing that 20 eminent economists have decided that now is the time to revisit the 50p tax rate – clearly for some the real pressing issue of the day.

The fact that I greatly respect many of the signatories makes this even more depressing.

We don’t yet know if the 50p rate is raising revenues – although I suspect it is. Even the government now seems to admit that, recently briefing that:

Treasury analysis shows that Labour’s decision to raise the rate to 50p for those earning £150,000 a year or more has generated up to £2.4 billion a year.

The central argument of the 20 objectors is that Britain is now: 

one of the highest personal tax regimes in the industrialised world, making it less competitive internationally, and making us less attractive as a destination for both foreign investment and talented workers

An argument not backed up by either immigration figures (where the attempt to cap numbers is struggling) or foreign direct investment analysis (where the UK is ranked highest in Europe).

I also notice that the economists make no effort to put a figure on what the contribution to growth of cutting the 50p rate would be.

We’ll get a Treasury analysis of the effects of the 50p rate in the next few months – not that this will settle the argument, the crucial assumptions on how the rate has affected behavior will no doubt be subject to argument, one year after the bankers’ bonus pay roll levy there is still a fight about how much it raised. This letter seems an attempt to soften the ground for cutting the rate.

I’m reminded of one of favorite Kalecki quotes (actually on using fiscal policy to achieve full employment rather than on tax per se, but the point stands):

In this situation a powerful alliance is likely to be formed between big business and rentier interests, and they would probably find more than one economist to declare that the situation was manifestly unsound.

10 Responses

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  1. metatone said, on September 7, 2011 at 5:31 pm

    If the economics profession had any self-respect, those 20 economists would be tarred and feathered for making such evidence-free political assertions.

    OR

    If the economics profession had any self-respect, those 20 economists would be tarred and feathered for selling their policy voice to the top 1% for such an appallingly low figure. If you’re going to sell your integrity to the rich, at least get more than a pittance.

  2. gastro george said, on September 8, 2011 at 8:12 am

    I’m not sure which is worse, the letter itself or the BBC choosing to lead with it on the day’s mainstream news programmes, coupled with such “even-handed” journalism that they punted that 50p would be removed eventually and the decision about timing was only political. Aren’t journalists meant to ask questions about evidence and effectiveness, you know, apply some form of critical facility?

  3. Dave Holden said, on September 8, 2011 at 8:47 am

    The main problem I have with this is that the term “economist” would any longer confers a person with authority on economic matters.

    Duncan, what are your opinions on the libdem’s mansion tax.

  4. J said, on September 8, 2011 at 9:55 am

    A mansion tax would be hideous for horizontal equity.

  5. Dave Holden said, on September 8, 2011 at 10:48 am

    What’s “horizontal equity”?

    • Peter Kunzmann said, on September 8, 2011 at 2:49 pm

      The union for actors lying down.

  6. Bob said, on September 8, 2011 at 7:15 pm

    Good post. The evidence for scrapping the 50p tax rate is poor, at best.

    Incidentally, I checked your listed interests, and immediately thought of a blog that would interest you. It’s a in depth post keynesian blog:

    http://socialdemocracy21stcentury.blogspot.com/

    Give it a go.

  7. […] an end to the 50p tax rate, noting that there are other much more urgent economic problems that need to be addressed, although Labour List asks for a more developed […]

  8. Richard T said, on September 22, 2011 at 10:36 am

    I see you link to the Left Foot Forward post where you claim that Speccy Nelson wrongly attacked your triumphant claim of additional revenue courtesy of the 50p rate. several posters there have pointed out that Nelson was factually correct and you are factually wrong as regards HMRC payment on account rules.

    Any comment on this?


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