Why Lib Dems should be for scrapping the 50p tax rate

Written by Total Politics has a free weekly Friday email bulletin. Follow this link to register. on 14 September 2011 in Diary
Charlotte Henry urges Lib Dem conference to call for the 50p tax rate to be scrapped, but is sceptical about whether delegates will follow her lead

The 50p tax rate has become another coalition cause célèbre for the Lib Dem left: "Look, look what we can stop those nasty Tories doing". Party President Tim Farron said that scrapping the rate for those that earn over £100K would be "phenomenally immoral", and even Danny Alexander said anyone who wanted to scrap it at the moment was "living in cloud cuckoo land."

While I don't doubt that some of the Lib Dem desire to keep the 50p rate is genuine, it is also thoroughly misguided. To my mind, the 50p rate of tax is anti-success, anti-meritocratic, and anti-entrepreneurial. Ultimately, it is illiberal. Liberals have a proud history of advocating self-advancement, and we should be encouraging personal success, not punishing it.

Furthermore, I believe much of the opposition is posturing, to the point that no amount of evidence showing the financial problems the 50p rates causes would shift opinion. There is a strong case that the 50p tax doesn't even generate significant income for the Treasury, and possibly even has a negative economic effect. For example, the letter in the FT referred to in the previous link points out that “The UK has already slipped from second to fourth place as a destination for inward investment”. That is before you start considering the mobility of those that have to pay it. They are people who are able to spend their money elsewhere. Hardly a way to generate growth...

Want to drive success out of Britain? Keep the 50p tax rate. Want to stop people starting a business in Britain? Keep the 50p tax rate. Want to maintain a culture where success is looked down on? Keep the 50p tax rate.

That said, I would not advocate reducing the top rate of tax until the level at which one starts paying income tax is increased to £10k. This is an excellent Lib Dem policy that helps both the economy and social mobility. It is right and proper that our policies should help the least well off first, and increase the spending power of as many people in society as possible at these difficult economic times. However, I do think we should join our coalition partners in declaring Labour's punitive tax temporary.

Over the next few days, at our conference, the Lib Dems will make a lot of noises about defining ourselves. Many of the policies that will emerge from our democratic debates will have a positive effect on the government and the country. Unfortunately though, this is one thing I don't think the conference will get behind.

Tags: 50p tax rate, Danny Alexander, Tim Farron

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