abolishing the 50p tax rate by 2013?

[LegoStuckinMyhoover]

has this been covered on here yet?

Don't think so.

But the raise to 50% was always a political stunt anyway more than a serious attempt at plugging the deficit. Rich people have options. They can move, they can restructure their pay. Plus contrary to popular belief, there are not enough rich people to pay anywhere near the extra tax needed.

Having such a high rate just puts people off coming to Britain to work, encourages clever/successful people to leave then instead of getting 40% of their income, we get 50% of £0.

In the same way that we're having to cut corporation taxes to encourage companies to invest in the UK or stay here, we need to do the same for the rich.

Like it or not, they're the ones who pay the most tax per person.

Oh look it's the "I'll take my ball away" argument again.

If these rich people are so bothered about every penny of tax why haven't they already moved abroad? And if they want to live here, and have all that money, why shouldn't they choose to spend it on living here?

I wonder if there has been any objective research on how many people left the country in response to the 50p rate.

I don't know how many people have left the country in response to the 50% tax rate, but the recent report by the Adam Smith Institute here suggests that it could deprive the country of £350 billion over the next decade as the wealthy adjust their behaviour in response to the tax - not just leaving the country but retiring early, working less or seeking out tax shelters and other avoidance measures.

The report also calls for a reduction of the 40% rate to 35%.

I know it is counter intuitive but why is it so hard to understand that high rates of taxation do not necessarily result in larger revenues for the government?

Of course, if you merely want punitive taxation then tax away.

Unfortunately it's very difficult to measure how many people left in response to the 50% tax rise. Even harder to measure how many of those now won't come to the UK to work as a result.

But Moneyweek estimate that even a conservative estimate of 300 bankers leaving for Switzerland would mean a loss of hundreds of millions in lost tax revenue.

Like I said earlier, in my opinion the best way out of the current financial mess is to attract companies and high earners to work in the UK. A punitive tax regime won't do that. It only drives people out, dissuades people coming making a bad situation worse.

The thing is Paul88 - it's not the one's who 'threaten' to go, who've got to worry about. It's the one who quietly adjust their lives and their finances to suit the tax regime.

These people aren't really being selfish. For example - why work if time with your family is worth more to you than your marginal income after tax?

And many highest rate tax payers aren't British born. There comes a point when they would rather go home, or to another country.

You are all assuming that these people are actually worth their salaries. If they choose to go elsewhere, and someone else does the same job for less money, that's probably a good thing.

Lets not talk about bankers for a change. Lets talk about BBC presenters. Lets say Paxman wasn't allowed to avoid tax any more and left the country to work for al-jazeera and a better lifestyle in Qatar. Yes the HMRC would miss out on some tax from his employment. The BBC would give someone else his job for less money. I think they would be able to find someone perfectly capable of doing the job even if it wasn't someone who thought quite so much of himself. They would probably spend the change employing someone else.

Two employees on lower incomes don't pay as much tax as as one on both incomes added together - but somewhere along the way that's one less person on benefits. Probably on the whole we win. And Paxman can live happily ever after elsewhere.

The only people I know who pay that rate of tax own their own businesses, if they moved overseas it wouldn't just be their tax we'd lose but also that of the 20ish people they employ and any business taxes.

Anyone who understands Laffer curves knows that the lower the tax rate, the higher the tax collected.

We'd be in a better place if higher earners weren't taxed at all. That way they'd have a real incentive to contribute.

googles

OK so now I understand Laffer curves. It wasn't hard. You should try wikipedia so you understand them too - it is sometimes right.

Of course if it were true that decreasing tax rates increased revenue it would be surprising if some politician, left or right, somewhere in the world, hadn't tried this.

MumInBeds - I am finding it hard to think of a business of that size that could easily move all its employees abroad and not need to be local to its customers. Software development perhaps? But even then surely they would lose some staff who didn't want to go? Would it really save the owner money?

you don't need to move staff abroad - you can sack the ones you have here and employ people in, say, India to do the work. I know of at least two accountancy firms which have done this.

Also, if someone leaves, they might not need to be replaced.

They might just continue to do their work for their clients (who are often not in the UK) elsewhere. And pay their tax there too.

DH has many colleagues who have moved to other jurisdictions (not always for tax reasons btw) and their work/clients have gone with them. The firm still gets the profit. The new jurisdiction gets the tax and the benefit of that person spending their dosh.

Only the UK loses out - in terms of tax and that person not spending in situ.

Many higher earners already spend a lot of time on the road, their work is highly flexible. Where they are based is often simply a matter of convenience or where they fancy.

you don't need to move staff abroad - you can sack the ones you have here and employ people in, say, India to do the work. I know of at least two accountancy firms which have done this.

That's pretty much my job. I help take work from UK/European countries and offshore them. So don't tell me it doesn't happen.

What multinationals do nowadays is they pretty much work out where the lowest cost country then can get away with and move there. If the government can offer incentives then even better. The last country we went to offered us free computers (despite the fact we are a massive computer company) and subsidised networks, offices and even laid on free buses to get staff to/from the office.

Now if you are a large multinational. You have to pick a location for your office. Where do you go? Somewhere with low taxes where the govt are bending over backwards for your business? Or to the UK where the successful get shafted and told shut up and be grateful they pay 50% tax?

I don't believe in taxing anyone more than 50% of what they earn (and the current top rate is 52%). It seems intuitively unfair. In addition, it has not been shown to be effective to raise tax beyond a certain level. On the other hand, we have to recognise that tax is political and not merely economic. It would have been tough to not ask the bankers to contribute more after having only kept their jobs thanks to a huge taxpayer injection.

People are mobile, up to a point. Tax the rich too highly and they will leave. The question is where that tipping point lies. Clearly the current rates are close. The thing is that most high earners are also wealthy and tax on wealth is still a lot lower than tax on income (CGT at 28%) so it is not a simple equation. Most people prefer to stay in a familiar country with their family and friends if at all feasible economically. I don't think a lot of people will leave at current rates but young hedgies with no family will almost certainly depart.

Muminbeds,

Anyone who owns their own business and pays 50% tax needs a tax advisor as a matter of urgency! Why not pay themselves a smaller salary and more in dividends, which are taxed at a far lower rate? As well as there being plenty of other allowances for entrepreneurs (EIS, VCT etc etc).

Nepko,

I do not know if you really misunderstand laffer curves that badly or you are just being inflammatory. Clearly, there is an optimum point of taxation for revenue raising. It is certainly not 0%.

"Of course if it were true that decreasing tax rates increased revenue it would be surprising if some politician, left or right, somewhere in the world, hadn't tried this."

Actually Paul88 - this has happened. Google some more.

The difficulty with the Laffer curves is predicting the point at which an extra percent in tax rate will reduce total tax take. This point will vary given different economic conditions and in different countries.

As other have suggested - the 50% tax rate was more a political move than an economic one.

There has long been an assumption that 50% is a tipping point. Based on the psychological impact of handing over more than half your (incremental pay) to the tax man. But we won't have numbers on the impact of the 50% rate until 2012.

But it is interesting that when Labour announced it to much trumpeting that it would bring in £2 billion. Then quickly and quietly revised the figure to £1 billion. Whilst the institute of directors (i guess they could be biased) claim it will not bring in any additional revenue because people will adjust their compensation accordingly.

earthworms Adam Smith Institute link is worth a read. As she says they estimated it could cost £350bn over ten years (assuming it stays, I guess).

But few serious people see it as a big revenue earner. Tis political and about fairness. In my opinion, in the short term most PAYE earners will just pay it.

One other point caping cash bonuses and forcing bank workers to take shares won't help the total 50% tax take. Actually, I suspect many bank workers are reasonably happy to have their tax payment delayed.

Whilst the laffer curve exists it not agreed at which point it starts to affect tax take.

By some peoples reckoning the Scandinavian countries should be in big trouble but suprise suprise they have better social services than the UK and good economies.

150k isn't rich. It is well off but not rich.

My children leave home in 5 years and we are going abroad. 20 per cent tax in the country we have chosen ( the company gives a choice of bases). Many of our friends have already gone. I think there is already a silent exodus. We paid 80k on tax and ni as a couple this year. We plan to work abroad for 10 years then retire (in the uk would have been 15). We will not be paying about a million over that time (15 years) to the uk.

Change, where do you intend to live when you retire?

My partner and I earned over £88k which I agree is not rich but it very comfortable.

Whilst not paying 80k in stoppages last year we paid over £40k which I see as taking part in society

We are going to be based on Singapore for last 10 years of employment. Once retired not sure.

I will have paid uk tax for 31 years by then. I think I have done my bit.

We pay out over 1k a month in petrol just to get to work at the moment as well.

"By some peoples reckoning the Scandinavian countries should be in big trouble but suprise suprise they have better social services than the UK and good economies."

Actually - many Scandinavian countries have been reducing their top rate of tax over the last few years. I don't think it's because they want to be kind to rich people. It is because they want to collect more tax.