Andy Burnham has been warned by the International Monetary Fund that a tax raid on top earners would backfire and cost the Treasury billions of pounds. The Telegraph has more.
The Washington-based body said raising the 45p additional rate of income tax would do more harm than good, cautioning that Britain was already close to the limit of how much it could tax workers.
The warning comes amid speculation that Rachel Reeves could be replaced as Chancellor by Shabana Mahmood, who has previously backed restoring the 50p top rate of income tax.
However, the IMF said Britain’s highest earners already faced some of the toughest marginal tax rates in the Group of Seven (G7).
Taxes on every extra pound earned by higher earners are 60% on average, compared with less than 40% in countries including the US and Japan.
Tax officials at HMRC expect a record 40 million Britons to pay income tax this year for the first time.
A record nine million are also now paying the higher or additional rates of 40p or 45p – almost double the number a decade ago.
However, IMF analysis suggests targeting high earners with more punitive levies would ultimately reduce revenues.
Scenarios modelled by the fund showed that increasing the marginal tax rate on the top 10% of taxpayers – those making more than £72,500 – by five percentage points would reduce tax revenues by 0.5% a year while cutting total earnings across the economy by 0.9%.
This is the equivalent of almost £2 billion, while the reduction in earnings could hit £13 billion as people give up work.
“Increasing rates at the top does not generate significant additional revenues,” the Washington-based body said.
“These results point to a clear revenue-efficiency trade-off: broader increases generate larger revenue gains, but also larger labour-supply losses, while increases at the top are more progressive, but yield little additional fiscal space once behavioural responses are taken into account.”
The top 10% of earners in the UK generate almost 60% of all income tax receipts, which are expected to total around £350 billion this year.
The IMF also warned that Britain’s tax system contains a series of so-called cliff edges that create high marginal tax rates.
Worth reading in full.
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Laffer Curve. Socialists refuse to believe it exists.
1970s: top rate of income tax 83% plus 15% super tax on unearned income giving a marginal rate of 98%. Except there was nobody to tax, they had all left to live in more kindly tax regimes.
Income Tax rates started at 35% and went up in 5% increments in narrow tax bands, which were not increased with inflation – fiscal drag – so a large sector of “hard working men and women” were in the 40% to 50% bands. Corporation tax was 52%
If taxation is the answer, why didn’t it work back in the 60s and 70s?
How is what he wants to do, just not more of what our current useless Chancellor has been doing?
The suggestion that he will be forced to have another woman to replace the office temp is taking root. Pixie Balls Cooper has been suggested but seems keen to stay at the foreign office leaving the Pakistani Mahmood the favourite although there have been questions over her economic experience – so no difference there then.
With the numbers of people supported by taxpayers, surely what were once high earners are now just normal earners?
And this is where I have to resort to mental gymnastics that never looks pretty. Tax should be a fair exchange – a payment for services – and wealthy people don’t use those services any more than poor people. But. Unrestricted capitalism will always result in unrestricted power. Unrestricted power will always result in unrestricted influence and control – it is how we get to where we are now. And is the person working 60 hours/week stacking shelves worth less than the person who has inherited their fortune by doing nothing other than being lucky enough to be the sparkle in their father’s eye? So I do believe that unrestricted capitalism is as big a problem as any form of Marxism; that both end up in the same place – incredible power in the hands of the few over the many. Our problem, I believe, is that we cannot think outside of those extreme boundaries which, ironically, overlap perfectly.
Starmer told us before that Council tax is not a tax! I expect Burnham to scrap Council tax and replace with a 1% annual property value tax with no dispensation for those who live on their own.
This benefits homes with several earners and will drive out poorer folk to downsizing, taking loans or sharing the home with others.
My house is valued at £340,000.
My bill would go up by another £1,500 pa and I would need to find a lodger or work to pay for it.
Britain is so badly broken it is hard to know where to start. Lowering taxes is always a good place. Cutting benefits another helpful step. It is not that hard.
Not just cutting benefits but also the colossal waste Charlotte Gill regularly highlights here.
“Tax officials at HMRC expect a record 40 million Britons to pay income tax this year for the first time.”
But that won’t include 85% of the Boriswave; or a very large proportion of some ethnic minorities since their wives are kept pregnant and at home; and it certainly won’t include the criminal migrants who get “free everything” or the 18 strong Gazan extended family who are being allowed here to suck on the taxpayer teat.
So basically the white working and retired native population and long-term settled population are being taxed to oblivion to pay for foreign freeloaders and the native underclass.
When the tax revenue dwindles Burn’em’s government will attempt to borrow more. The cost of servicing the debts will go up leaving a choice between borrowing yet more and cutting spending. I think I know what he’ll choose until he too is kicked out.
My grandchildren will be left making the repayments throughout their working lives – unless they escape.
Backfire implies there is a genuine intention for it to have a positive impact on tax revenue. I’m not convinced. It plays well with the voters.
The Laffer curve is no laughing matter. It makes the poor poorer with unintended consequences. The wealth creators and high earners have reduced incentives. Paying even more tax. So emigrate, sell up, lay people off or downsize until a sensible government is elected.
The damage takes decades if not generations to recover and even then you don’t recover it all.
This is a massive permanent systemic hit.
Yes. The monetary inflation caused since the War by borrowing and money printing to pay for nationalised industries, the welfare-state, and to make up the shortfall from diminishing tax receipts as a result of increasing taxation, is the reason now why few young people can buy their first house and start a family.
Filling the country with millions of immigrant scum has made a housing shortage, as has allowing a huge increase in student accommodation where they enjoy the ‘university experience’ of heavy socialising to little educational benefit.
Such is the nature of socialism. But please don’t say this is an error, mistake or misjudgement. Those who promote the elitism view of society which is called socialism never regret the bad outcomes.
They think the impoverished will flock to support them.
I believe there is an old fable about someone who killed a goose that laid golden eggs. There was a moral there somewhere but it’s probably a bit too subtle for socialists.
The Laffer Curve applies across the economy, not just to high wealth creators, it is the total tax burden on economic activity. The “sweet spot” varies due to a number of factors, but the general principle applies, the more economic activity is taxed the less of it you will get and vice versa.
And in order to maintain or increase tax revenues, as high wealth individuals who are also highly mobile leave, the tax burden increases on less wealthy who lack that mobility.
cautioning that Britain was already close to the limit of how much it could tax workers.
I think we would likely say that Labour has taken us beyond the limit.
Statement of the bleeding obvious from the IMF but here we are, His Majesty’s Government need telling. Or at least they need telling that someone in some authority knows what they’re up to.
More importantly, perhaps, the people need a lesson in Economics 101 and The Politics of Envy and Dependency. They’re going to get it anyway, and it will be very expensive for everyone.
I have repeatedly posted in recent weeks about my view of the response from international bodies when the UK government seeks financial support.
In brief, I do not expect it will be forthcoming. The last time we asked a number of member states objected to j believe it got through because the USA supported the (grovelling) application.
I anticipate objections will be more widespread and tbs USA might not see why it should supplier the bail out of an old, formerly wealthy nation. They might think our poverty was wilfully created by successive governments. They would be right.
There is no one else left to loot.
The top earners are rhe only net contributors left.
At some point they’ll have to cut back on what they give away. Or they’ll print more money and people will just get poorer and poorer through inflation.
We all know has this works. We’re just unable to change the system to something that doesn’t degrade towards eventual collapse.
If a socialist party cannot even slow the rise in welfare expenditure – the welfare state being something it created – then no one can.
We can’t change it until we vote for redponsie, calmly patriotically government.
Don’t vote for anything red….
Blame the people who want their free NHS, free education, pension welfare in their old age and State-provided carers to wipe their arses because they didn’t know they would get old and their care would need money to pay for it, people who think child allowance is a Right, sickness benefit, maternity benefit, unemployment benefit.
Everyone thinks they are entitled to live at each other’s expense.
Who will vote for a Party which will abolish the welfare State?