Tax benefits for better off sends wrong message

AS we (hopefully) move back to a normal existence, as the roll-out of the Covid vaccine continues, there is sure to be great interest in the forthcoming budget to be delivered by Chancellor Rishi Sunak on Wednesday, March 3.

Months ago, I mentioned that “dishy” Rishi still needed to “win his spurs” as the person in control of our economy, as all he has done during 2020 was hand money out. Some schemes were needed and have proved successful, such as furlough; some schemes less so, like Eat Out To Help Out; many schemes have been subject to widespread fraudulent claims, although that is no fault of the chancellor, and requires further investigation.

Rishi’s big test is coming up next month – how does he address the new long-term national debt problem the country must deal with, while at the same time, creating the right circumstances that give hope to the less well-off in our society, that they might be able to move out of their poverty-stricken lives. Not an easy task.

Over the weekend, I read the recommendations of local MP, David Davis, which was to convince the chancellor not to raise taxes, but instead to actually reduce them.

He quoted Ronald Reagan in the 1980s, whose actions on income tax revived an ailing US economy, an element of which was to reduce their top-rate tax from 70 per cent to 28 per cent.

History seems to prove that these tactics worked, although I’m having trouble understanding how a similar exercise could succeed in the UK right now.

In 2021-22 taxpayers will pay 40 per cent on earnings – after allowances – over £50,000 and 45 per cent on earnings over £150,000. (Basic rate tax is 20 per cent).

On the face of it, I’m sure most people would not be able to understand how lowering these higher rates could improve tax revenues, and certainly not in the short term. The argument in favour is to revitalise the economy by making available more cash for business investment. A reasonable plan in the longer term, but I think other immediate needs should be addressed first.

Now, I’m not an economic genius, but I know a bit about PR and dealing with people, and tax benefits for the better off right now would send the wrong message to the majority of workers, many of whom have struggled to even survive during the pandemic.

Lives have been lost, livelihoods have been ruined and once-thriving businesses have been forced to cease trading over the past 12 months. Anyone who is earning over £150,000 is doing OK; anyone still earning between £50,000 and £150,000 would seem to have survived the virus, at least in broad financial terms.

On the basis of the foregoing, might it be better to raise the top two tax bands by, say 5 per cent, or 5 per cent and 10 per cent respectively, for a two-year period, while the country begins to get back on its feet? Surely this would still leave the better off with plenty of disposable income to spend and/or invest, making the extra tax generated available to provide continued support for those who most need it, and who will also spend it on a day-to-day basis, thus helping to revive small businesses, which in Mr Davis’s own words are “the beating heart of the UK”.

Just as important is to get the message across very clearly that the Government is putting money into every pocket, where it can do most good in terms of helping economic recovery.

Rob Milner, Hedon.