Why George should make taxes simpler

I WON’T be too appalled if the Chancellor doesn’t cut the top rate of income tax from 45p back to 40p in his Budget today.

This highest band applies for the top 1 pc of earners who make more than £150,000 a year.

It was introduced in 2010 by Labour as a 50p rate as a way to get the rich to pay more to help the economy. In April 2013, George Osborne cut it to 45p.

Now, many Tories are calling for it to be reduced again now the economy is back on track.

While you don’t want to deter ambition, a decent society should also lay down a moral marker and ask the rich to pay more.

And 45p for income over £150,000 seems fair to me. More than being an obstacle to endeavour, the 45p tax band should be aspirational.

We should want our top earners to be proud that they’re delivering so much to society that they are asked to contribute a little more. I know a number of business leaders who feel this way. The trouble for many in this band is money has come too easy. They’ve no concept of its value, so have no idea how important it is that in a fair society the wealthiest pay a little bit more.

There is also a good technical reason I think it should stay: it’s simple.

There are dozens of dazzlingly complicated bits to our tax system and that I’d encourage the Chancellor to axe — and he should begin with the restriction on personal allowances that kicks in at £100,000. Once someone hits this salary, the Treasury takes away £1 of their personal tax-free allowance for every £2 they earn.

So by the time someone earns £121,200 or more, they have no taxfree allowance. It effectively means that someone earning £100,000 has a marginal rate of tax of 62p.

This creates all kinds of unhelpful behaviour for the economy.

As soon as someone gets to £100,000 they start paying armfuls of cash in to their pension to claim as much tax relief as they can.

Companies that want to reward employees will deliver excessive pay rises because they know that for the income between £100,000 and £ 121,000 they’ll only take home £8,000. Now, you may think ‘ boohoo for them’, but tax that changes behaviour (in an unhelpful way) is not good for the economy.

Our tax code is 21,000 pages long, and runs to more than ten million words. George Osborne set up an Office of Tax Simplification to cut through this red tape. Through this body, he scrapped the extra tax relief lowincome pensioners get because it was deemed too complicated, but meanwhile added taxes that work in the same way — for example, the restriction on child benefit for parents who earn more than £50,000.

Instead, George should follow Nigel Lawson’s example and look to scrap taxes, because if you want the rich to pay their fair share, then you’ve got to keep tax simple.

Give this a try

ONE tax relief the Chancellor should consider is allowing socalled black box car cover policies to be offered free of insurance premium tax. There has been a marked fall in premiums for younger drivers recently, largely because of the use of this new technology which monitors and rewards good behaviour behind the wheel. There has been a 30 pc reduction in crashes for drivers with a black box.

But the cost of putting in these devices remains a hindrance for many. Now specialist insurer Ageas has submitted a plan to the Treasury which would see this restrictive up-front cost cut back. This would incentivise more people to have a black box. Ageas estimates the loss to the Treasury in tax over seven years would be £231 million — but the economic saving would be £829 million.

It could also save 259 lives a year. Of course, with any tax that influences behaviour there are factors that are hard to put in to figures. But surely this is one tax break worth trying?

Firms unite

I’D like to say an enormous thank you to the bosses of Britain’s biggest companies who have thrown their weight behind our campaign to improve the way firms treat bereaved families.

In less than a fortnight, the banks have already set up a task force which will investigate what steps are needed to set up a ‘Tell Us Once’ service.

This should help reduce the admin and the time it takes to sort out the finances of a loved one who has just died.

There are obstacles and practical issues that need ironing out — but with such tremendous backing from banks, building societies, energy firms, mobile companies and utilities, we have a wonderful chance to make a huge difference to hundreds of thousands of families a year.