There are no longer votes in taxing the rich
Ivan Lewis, a health minister in Gordon Brown’s government, is calling for a tax on the rich to subsidise the poor. Such a policy may have worked for Robin Hood but it would not work nowadays either fiscally or politically.
Lewis wants “higher taxes for the highest earners” according to his manifesto – and the poor to whom he would give the benefits are the middle classes. Top earners already pay more tax, of course: what the minister means is an even more progressive tax than Britain has now, with higher rates for the highest earners – undoing the work of Nigel Lawson when that chancellor abolished all rates above 40 per cent two decades ago.
The snag is that the sums don’t add up. There are far more middle-classes, nevermind poor, than there are rich people. For every top earner from whom another £1,000 of tax could be plucked there are thousands of lower earners who would receive less than £1 each. The yield isn’t there.
Nevertheless, such polls can tempt politicians like Lewis (and Treasury minister Angela Eagle who made a similar comment last autumn) to advocate such policies in a low appeal for popularity.
But while polls may indicate people would like the top 10 per cent of earners to pay more tax, that band includes everyone on more than £70,000 a year. When people say they want the rich taxed more heavily they are thinking of £700,000 or £7m – they don’t think they might fall into the top bracket themselves.
And don’t believe what people say in polls. They might be keen to see company directors’ bonuses taxed more heavily – and possibly the similar size wages of Premiership footballers or pop stars – but the public actually approves of high pay. They aspire to have it themselves.
Lewis has misread the mood of current politics if he thinks there is a widespread feeling of envy among the public. They want to join the rich, not tax them. There are no longer votes in hitting high earners.
Even the LibDems have abandoned their proposal for an extra 1p income tax on people earning more than £100,000. The main parties are agreed on cutting inheritance tax – the ultimate tax on the rich.
And in practical terms, do not expect Alistair Darling to tamper with tax rates again after the 10p rate fiasco (which he has yet to resolve beyond the current tax-year). The non-dom episode showed how top earners can rally to threaten a move offshore if their tax burden is increased.
Lewis has not done his maths but worse, his idea fails the tests of politics and pragmatism. Will he survive the reshuffle?
