Sunday, 23 November 2008

The end of new Labour

The widely leaked proposal to create a new tax band of 45 per cent for those earning over £150,000 a year - but not until after the next election - marks the end of new Labour. Once one has such a band, why not then make it 50 per cent for those earning over £100,000 a year?

There are probably no more than 400,000 people earning over £150k a year and one might generate £1.2bn which sounds a lot but is not compared to public expenditure totals. This is symbolic politics, but symbolism is very important in politics.

Of course, it does give something of an answer to the Conservative 'how would you fund it?' question. It also puts the Conservatives on the spot because if they say they wouldn't go ahead it creates a divide on fairness, albeit a somewhat artificial one, between them and Labour.

The reason for getting rid of high tax rates was in terms of the disincentive effects compared with the lack of revenue generated. Of course, what is often overlooked is that the 40 per cent marginal rate starts at a relatively low level in Britain compared with other countries. Someone like a deputy head teacher finds themselves in the higher tax bracket.

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