The notion that imposing or increasing tax will guarantee additional revenue is unfounded. In its attempts to demonstrate a focus on revenue collection, the government runs the risk of token taxation which is counter constructive. Two clear examples of this are Air Passenger Duty (APD) and the 50% tax rate – both of which would actually raise more revenue by being scrapped.
APD is damaging air travel and the tourist revenues needed to boost our economy, which far outweighs the value of the tax. Aviation has increasingly become a volumes game, with revenue structured to come from bolt-ons, off the back of affordable tickets. APD kills this for a significant number of people, so stifles air travel to this country, deflecting it to others and reducing the inbound tourism spend. In other words, an attractive loss leader for the consumer has not only become a barrier to sale, but also creates far-reaching collateral damage.
The 50% tax rate is a disincentive to serious entrepreneurs creating wealth. If they are drawing a salary of over £150,000, it’s not an unreasonable assumption that they are likely to be creating significant employment, and therefore income and corporation tax revenues far in excess of the 10% additional tax they themselves pay to the government. Instead, there is every incentive not to innovate in the UK, as there are better ways and places to make money.
This certainly calls into question why I would want to open my next company in the UK. While the government has made good progress in motivating people to create businesses of value, by extending the 10% capital gains rate for entrepreneurs to £10m, entrepreneurs still feel driven by taking home a meaningful salary along the way. Going halves with the government on every pound earned in the higher bracket sends a negative signal, to which instinctively driven people (which entrepreneurs typically are) respond badly.
The broader point here is how governments (of all parties it seems) respond to the popular dislike of individual wealth. Even for conservatives, for whom this has historically been a championable cause, this has become a dirty term, at exactly the point when there is a critical need for wealth, of any sort, to be generated for the better good of the country and society.
Optimising tax is about raising revenue in an optimal way, not about posturing about taxing the rich and funding lower income earners – it’s about creating wealth by incentivising wealth makers to create jobs and opportunities, which is what everyone in society would, in reality, much prefer – and will in turn bring spending back to the high street, which the government, and all of us, desperately need to happen.
Agree? Disagree? Leave your comment below.