George Osborne has to dump this toxic 50p tax rate

Craig Barrett 11.48am

Time and time again, I am reminded of those words of Sir John Major, spoken early on in the Blair maladministration:

“The Conservatives are elected to govern, Labour governs to be elected.”

So nightmarishly often in those thirteen years was policy made on the hoof. We endured a bewildering array of ill-thought out responses to opinion polls, designed to retain an unnecessary lead with no election in sight.

Of all the policies adopted by the last Labour government, none was more cynically designed to make life difficult for a future Conservative government than the 50 pence tax rate.

A lot has been written saying it is unlikely to cover the costs of its administration. But even to analyse its economics is to give Messrs Brown, Balls and Miliband the undeserved courtesy of implying they have any kind of grasp of basic economics.

Put simply, the 50p tax on incomes over £150,000 was designed to be eye-catching, a demonstration to the masses that Labour was prepared to soak the rich until the pips squeaked, so to speak.

Much of Gordon Brown’s fiscal policy during his tenure at the Treasury was less about raising revenue and more about making the tax system too complicated for people to understand.

Faced with a possible Conservative election victory, Brown’s Labour government knew the 50p tax policy was one that a future Chancellor Osborne would find difficult to reverse. The left-wing media would instantly bash it as a tax cut for the rich.

Yet abolish it Mr Osborne must. I have written before about the dangers of punitively high and unjustifiable taxation in a mobile global economy. This applies both to individuals and companies - the news earlier this week that Prudential may shift its headquarters to Hong Kong demonstrates our loss of competitive advantage.

Nearly 30 per cent of all income tax revenue is paid by the top 1 per cent of the earning population. We would all have to work a lot harder to replace one high earner who fled abroad to protect their salary. Many people may not hold much of a candle for high earners these days, but surely it is better that they and their companies remain on these shores so their taxes pay for British hospitals, rather than Chinese ones.

I welcomed the news yesterday that 537 entrepreneurs have written a letter to the Telegraph calling for the Chancellor to abolish the 50p tax rate. I understand that self-assessment tax revenues have fallen by £509 million year-on-year, which these entrepreneurs attribute to the toxic top tax bracket.

A tax that costs more to administer than the revenue it generates is no tax at all. It is just a soundbite. An embarrassing sop.

As the Chancellor prepares this month’s Budget, fully three years before the next general election, he must take note to use the opportunity to announce that Britain is open for business and encouraging of growth.

And there is one lesson he could learn from Gordon Brown, the old master of hiding bad news amidst the details. Just as Brown silently abolished the 10p tax band (doubling the tax rate on the lowest earners), so must George Osborne silently abolish the 50p rate.

Labour MPs, rightly, wailed with fury at that earlier sleight of hand. Conservative MPs will only cheer, rightly, at the sight of the second. The loss of a tax rate whose only effect is to tell the world the UK is not on the side of the wealth generator is nothing worth crying over.

Follow Craig on Twitter @mrsteeduk