Boris Johnson’s proposals to raise the 40 per cent tax rate threshold have been met with predictable hysteria on the Left. With comical inevitability, Shadow Chancellor John McDonnell declared that the suggestion represented a “race to the bottom”, seeking to portray it as being for the benefit of “the rich.”
McDonnell forgot to mention that £80,000 was the salary of “ordinary households” below which Labour’s Manifesto in 2017 guaranteed no rises in income tax.
McDonnell’s comments are also completely at odds with the Conservatives’ record for people on lower and middle incomes. About four million fewer people have to pay income tax now than they did in 2010/11. Under Labour, the poorest half of taxpayers paid 11.2 per cent of the income tax take in 2009/10. Under the Conservatives in 2017/18, that was down to 9.7 per cent. The top 10 per cent of earners paid 54.9 per cent of income tax in 2009/10, they paid 59.2 per cent in 2017/18.
Conservatives recognise that an enterprising economy relies upon creating the right conditions for strivers to succeed, rewarding aspiration and people keeping more of the money they earn. Boris’s plans are completely in tune with this outlook and can resolve the failure to raise the threshold in line with inflation.
A comparatively static threshold has seen too many people sucked into the higher rate over time. McDonnell might like to imagine that these are all oligarchs with yachts and helicopters, but the reality is that plenty of deputy headteachers, senior nurses and police inspectors have been hit hard. When Nigel Lawson was Chancellor in the 1980s, only one in 20 taxpayers paid the higher rate. It is now a staggering one in six, or 4.3 million people.
Plainly, therefore, Boris’s suggestion is a responsible and long-overdue answer to an urgent problem, which will be a boost to millions of individuals and families across the country. It is also incredibly refreshing to hear a Conservative making the case for how reducing tax rates can increase tax revenues, and so enhance vital public services. This argument is borne out across a range of different taxes.
It is well established that lowering the rate of corporation tax increases revenues. The 1 percentage point decrease in the main rate of corporation tax from 20 per cent to 19 per cent for 2017 brought about a 21 per cent increase in revenue on the previous year, or a 12.6 per cent increase on a purely cash basis.
When, under Liberal Democrat pressure, the rate of capital gains tax was increased from 18 per cent to 28 per cent under the coalition, the total take fell from £4.3 billion in 2011/12 to £3.9 billion in 2013/14, despite soaring stock and property markets.
Labour have never understood such arguments. Rather than trying to grow the cake, their focus is only on taking a bigger slice. It was on that basis that they introduced the 50 per cent rate in 2009. They claimed that George Osborne’s proposals to remove it would cost the Treasury £3 billion per year. In fact, reducing the top rate to 45 per cent raised an additional £8 billion in its first year alone and further reductions could and should see further revenue increases. Cutting the top tax rate increases both the proportion paid and the cash paid by the richest so, at the very least, we should return the top rate to 40 per cent, as it was from 1988 to 2010.
This is an argument that Conservatives need to make with vigour. Boris’s comments are a solid platform to reduce tax rates across the board and simplify an increasingly byzantine tax system.
For too long, the Tory Party has been fighting these battles on Labour’s terms, seeming to prefer virtue-signalling and nannying over sound economics. If he becomes Prime Minister, Boris will have a fantastic opportunity to change that, building on his experience running London, one of the world’s most enterprising cities and the home of the largest financial centre. The Conservatives must be the Party for rewarding hard work, making the UK a more attractive place to do business, and increasing money for the services that matter most.
We must be the Party that trusts people. Leave Labour to their meddling, interference and social engineering. The renewed Conservative Party, led by Boris Johnson, must be a beacon for everyone who believes that a society works best when people are most in control of their own money and their own lives, free to shape their own destinies.