In todays Financial Times 20 economists have written a letter to the Government to request that the top 50p tax band be scrapped. This seems very well-timed as it was widely reported that George Osborne returned from his holidays in mid August wanting to review the tax and its benefit to the country (http://www.bbc.co.uk/news/business-14515518). The Government has never hidden its dislike for the extra ‘burden’ on the very wealthy (the tax rate affects anyone with an annual income over £150,000). In pure financial terms it generates £2.7Bn for the Exchequer but what is unknown is how many with sufficient income and mobile lifestyles and a low commitment to England’s Green and Pleasant land are tempted to move away or not come to the UK. 

This morning on Radio 4’s Today programme, we heard an interview with DeAnne Julius who was one of the 20 economists who signed the letter. In discussion with Evan Davies she declared that the tax has led to businesses moving away from the UK, and also referred to the 1970’s when a great deal of damage was done by such high rates of tax. She also stressed that the £2.7Bn was only an estimate of the money generated. DeAnne was a founder member of the Bank of England’s Monetary Policy Committee and has been Chairman of Chatham House since 2003. She was a former CIA analyst and is a non-executive director of BP. She would certainly appear to be a smart cookie, and one presumes understands the need for facts in her economic assessments.

Evan Davies challenged her view regarding those leaving these shores and she admitted all she had to rely on was anecdotes (indeed she quoted someone she had met in the Green Room whilst waiting for the interview!). Surely no economist would rely on anecdote to recommend a change to the tax rules.

Although Evan did not challenge her historical understanding, I like DeAnne remember the 1970’s. In 1974 people whose income was over £20,000 (£155,000 in todays terms) did indeed pay a high rate of tax. This rate was 83% and the basic rate of tax was 33%. The current rates are nowhere near the levels of the 1970s. It is vital that economists are capable of understanding historical facts (especially so if they lived through the events – DeAnne was born in 1949).

Whilst I understand that we need a dynamic economy and that this depends on setting appropriate tax rates, it also depends on dealing with the whole taxation and benefit package and not simply chipping away at  the bits that don’t suit us. Deanne may be alone signing this letter on the basis of anecdote and forgotten history, but her performance on todays programme does bring into question the validity of the letter as a whole. Last year the MPC members were paid just under £100,000 for sitting on this monthly committee, so the committee members are probably some of those who are paying this level of tax. Whilst that doesn’t disqualify them from their point of view, it is at least as relevant as anecdotes about a few people leaving the UK.

If the economists and George do get their way, this will leave the Treasury searching for another section of society to fill the void. If money is not raised from taxpayers it will need to be cut from budgets (that much I do know about economics). It was interesting to hear in the same programme about low-income families where the carer for the children is dissuaded from working (and therefore improving their income) because of the cost of childcare. If the state funds the childcare, there is evidence that not only do many of the children benefit, but we save money on the support for the family in other ways. In addition we create meaningful work for those who look after the children. This is a different sort of economics. Perhaps Ms Julius and her 19 colleagues could consider solving this problem, and then the rest of us might be more sympathetic to her own special pleading.