50p tax: Still a Tory obsession, still not that exceptional

Alex Hern runs over the latest piece of bad Conservative economics to try and get the 50p tax rate for the richest in our society scrapped.

Conservative Home is reporting Britain will lose its high earners if the 50% tax band isn’t abolished.

Tim Montgomerie writes:

The Chancellor of the Exchequer is warned today that he needs to fashion a more competitive tax system for higher earners or Britain will lose those wealth creators to lower tax jurisdictions.

Using data from the World Economic Forum, the Centre for Economics and Business Research (CEBR) says that “the UK has gone from being a relatively low tax place to do business to one which is relatively uncompetitive compared with other larger economies”

Just one example of the shoddy research CEBR have performed can be found in their analysis of comparative tax rates.

They run a graph comparing Britain’s highest marginal tax rate with the other nine largest world economies:

Conservative-Home-graph-of-top-rate-of-tax-in-10-largest-world-economies
As we reported when the BBC made the same error:

In any case, this doesn’t really matter because the data the BBC is using, while accurate, doesn’t show what it seems to be showing.

First of all, it reports only central government top marginal rates, when several of the countries involved have sub-national income taxes as well.

Secondly, the rates cited take no account of payroll taxes such as National Insurance contributions. In several countries these are still in play at the earnings level where the top marginal rate kicks in, and are obviously crucial in any assessment of the economic impact of marginal rates.

Fortunately the OECD also publishes an ‘all-in’ series on top marginal rates taking account of sub-national and payroll taxes. Note that the OECD reports the top rate in the UK as 51 per cent, reflecting the one per cent National Insurance Contribution above the Upper Earnings Limit (two per cent since April 2011, but these figures are for 2010).

Applying the OECD’s measure to the countries that CEBR picks results in a rather different looking graph:

OECD-graph-of-top-rate-of-tax-in-G7
Notice, for instance, that none of the countries have top tax rates below forty per cent, and only the USA doesn’t have top rates above 45 per cent – still higher than where scrapping the 50 per cent rate would leave us. What the CEBR is actually advocating is a race to the bottom.

Secondly, notice that Brazil, India and China aren’t included in the OECD figures. Why? Because they are developing nations – powerful competitors, future risks, but for now, not stealing our best and brightest away.

Indeed, if we are trying to compete with these countries on pay for the super-rich, we’ve already lost. The cost of living is so low in these countries that even if we had a tax rate of zero per cent, people would still be richer, in practical terms, if they moved there.

By way of example, consider the Economist’s Big Mac index. A Big Mac in India costs $1.89, while one here costs $3.89. That means that if India had a flat tax of 30 per cent – which they don’t – and we had no income tax at all – which we don’t – you would still be able to buy more Big Macs for every pound earned in India than you would for every pound earned here.

That applies throughout the economy. If someone wants to move somewhere where they can buy the most things possible, they would have moved to India or China years ago. But they don’t, because actually, Western quality of life is quite nice. And as I’ve shown above, in the West, our tax rate is perfectly competitive.

The rest of the report is just as bad. Sunny Hundal over at Liberal Conspiracy has already done a good job tearing it apart.

He concludes his piece:

The impeccable report actually admits the 50p tax may raise revenue… for several years!

But you see, because the world has become more globalised, and because tackling tax evasion is a ‘cost’ – there may be a negative impact. I can’t tell you by how much, because Ican’t actually see any projections based on credible figures.

I can’t even see where the £1bn figure the Telegraph self-confidently mentions comes from. Can anyone find it?

This is the height of right-wing research and thinking? Really? Perhaps the “influential research group” CEBR should consider commissioning researchers who have studied beyond Economics A level.

See also:

There’s nothing exceptional about 50% tax rates – Declan Gaffney, September 9th 2011

Only quarter of voters want to scrap 50p tax – Will Straw, August 1st 2011

The truth behind the Mail’s warning that 50p tax will cost £350bn – Will Straw, March 10th 2011

Fraser Nelson is wrong on the 50p tax rate – Duncan Weldon, February 24th 2011

Fraser Nelson’s attack on 50p tax rate is full of holes – Jana Mills, November 12th 2010

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12 Responses to “50p tax: Still a Tory obsession, still not that exceptional”

  1. Mike Le-Surf

    50p tax: Still a Tory obsession, still not that exceptional: http://t.co/jRSmkCc9 – @AlexHern on the Tory lust to enrich the rich

  2. Geoffrey Pearson

    50p tax: Still a Tory obsession, still not that exceptional: http://t.co/jRSmkCc9 – @AlexHern on the Tory lust to enrich the rich

  3. Samuel Tarry

    RT @leftfootfwd: 50p tax: Still a Tory obsession, still not that exceptional: http://t.co/I9XJtekR – @AlexHern on … http://t.co/VwWmZaJX

  4. Political Planet

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  5. Joseph Burnett

    50p tax: Still a Tory obsession, still not that exceptional: http://t.co/jRSmkCc9 – @AlexHern on the Tory lust to enrich the rich

  6. Michael

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  7. Neil

    50p tax: Still a Tory obsession, still not that exceptional: http://t.co/jRSmkCc9 – @AlexHern on the Tory lust to enrich the rich

  8. Robert CP

    50p tax: Still a Tory obsession, still not that exceptional: http://t.co/jRSmkCc9 – @AlexHern on the Tory lust to enrich the rich

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