By Nick James
Commenting ahead of the reduction to the 50p rate of income tax, Mark Littlewood, Director General at the Institute of Economic Affairs, said:
“The introduction of the 45p top rate of income tax does not go far enough. Any tax cut is good for stimulating the economic growth we so badly need, but the Chancellor should have been braver and cut it to 40p when he had the opportunity. When the rate was cut from 60% to 40% in 1988, tax revenues soared because it created the incentive to work and invest in Britain. This is the kind of action we need now to boost our faltering economy."
Is this really the case though? I know a lot of entrepreneurs and quite frankly they wont suddenly work harder and invest more in their businesses because the tax rate falls. A 45p top rate feels about right and there is no evidence to show that the 'saving' will be spent in the UK economy.
Littlewood is right when he says that: “A considerable amount of those earning over £150,000 create jobs" - but it is madness to suggest they are going to create more jobs because the tax rate drops another 5%.
It would also have been politically and socially unacceptable to further cut the top tax rate and ask the less well off and vulnerable people in our society to pay for it.
What do you think? http://twitter.com/Freshnick