Throttling The Goose

Wake up Polly

According to the Office for National Statistics, the richest 10% of households pay a quarter of all personal taxes (including income tax, National Insurance, VAT, Council Tax, and sin duties).

Good thing too, you say - they're rich, so they can afford it.

And you do have a point. Especially when you consider that this richest 10% get 30% of all the income (ie households original income, before taxing account of tax and welfare benefits).

But then again, these rich households contain the very people we're going to need to drag Britain out of the mire. The contain the entrepreneurs, the high skill professionals, and yes, the bankers, on whom we will depend to create the wealth of the future. Which means we need to be very careful before whacking them with yet higher taxes.

Unfortunately, as you may know, yesterday saw the introduction of the new 50p tax rate for everyone getting over £150 grand pa. It also saw the abolition of the tax-free persconal allowance for anyone getting more than £100 grand (the allowance is progressively clawed back as income rises above £100k, imposing an effective 61% tax band between £100k and £113k).

It's certainly not the way to get the economy moving again. But the really stupid thing is that it's most unlikely to raise any additional tax revenue (see this blog). Indeed, by encouraging high earners to rearrange their affairs in order to avoid the tax, it could easily reduce revenue.

Just as a reminder, when Thatcher's government cut the top rate of income tax, it substantially increased payments from top taxpayers. In 1979, the top rate was cut from Labour's lunatic 83% down to a somewhat saner 60%, and then in 1988 it was cut again to 40%. And the share of income tax paid by the top 1% of taxpayers virtually doubled, from 11% in 1978-79 up to 21% by the 1990s.

For future reference here are the figures (including the proportion of tax paid by the top 10%):

To summarise, history tells us that cutting top income tax rates increases the amount of tax paid by the rich.

HMRC estimates that nearly three-quarters of all income tax last year was paid by the richest 25%. We have now put that in serious jeopardy.

So why hasn't multi-millionaire Dave Cam pledged to reverse Labour's top tax increases?

Don't be daft - you know why.

We'll just have to hope that really he does understands the damage it will do, and somehow finds the courage to reverse it as soon as he gets his feet under the desk.