Friday, 5 August 2011

Proceed with caution

Apparently some consideration is being given to replacing the 50 per cent tax rate by increasing the 40 per cent rate to 45 per cent. The 50 per cent rate (63 per cent if one takes account of national insurance) is, of course, loaded with political symbolism in terms of 'punishing the rich' but is totally ineffective in terms of generating any additional net revunue. It just complicates further an already complicated tax system.

However, in political terms one has to be very careful about increasing the 40 per cent rate. It brings within its net a considerable number of people who are potentially Conservative voters. One could, of course, increase the threshhold (which has fallen behind increasing salaries) to reduce the impact but this could minimise the revenue raising effect.

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