For someone that has harangued Britain’s coalition government for stifling economic growth with its austerity measures, it is ironic that Ed Balls is calling for the return of the 50 percent top rate of income tax to bolster public finances.
Over the weekend Balls, Labour’s Shadow Chancellor, said he would bring back the 50p income tax rate for those earning more than £150,000 a year; a policy that was implemented by former Labour Chancellor Alastair Darling. Such a drastic change would be merely a populist move by a man who has been proven wrong by the strengthening UK economy.
The austerity measures implemented by the government have not been popular, but they have, on the whole, been necessary. The state had become far too bloated during the last 15 years, and cuts needed to be made so that the UK’s debt burden was drastically reduced. It is these cuts, and not the brief raising of the 50p tax rate, that have helped slow down the rate at which the UK’s debt has grown.
What the move would do, in fact, is punish those in industry who have been helping to get the economy back on its feet
A number of independent studies – the most notable of which by the Institute for Fiscal Studies (IFS) – have said that the affect of raising the rate to 50p would be negligible. The IFS said it would only raise a “very small amount of money” towards reducing the government deficit. It believes that such a move would raise only around £100m; a tiny amount in terms of the overall debt burden.
What the move would do, in fact, is punish those in industry who have been helping to get the economy back on its feet. The private-led recovery – which is today expected to reveal better than predicted growth last year of almost two percent – is still in its very early stages. While there is of course a huge disparity in incomes throughout the UK, those earning higher incomes should be supported so that they can put more back into the economy, thus helping create jobs for those currently struggling.
Over the course of the next few years, politicians should be doing their utmost to support business and entrepreneurs, so that they can help spur on the modest growth seen over the last 12 months. Instead, politicians are far too eager to demonise the easy targets that are high earners in order to curry favour with a disgruntled and struggling general public.
While this is predictable in the lead up to the general election next year, it would be nice to think that the days of bashing high earners will be confined to the years immediately after the 2008 financial crisis. Encouraging aspiration is the only way that the inequality throughout society will be addressed.