Much has been made of the announcement yesterday by the Shadow Chancellor Ed Balls MP that a Labour government would reintroduce a 50% tax on incomes over £150,000. The motivation of this policy is to reduce the deficit, and taxing higher incomes is clearly far preferable than withdrawing even more state benefits from some of the most vulnerable in our society.
The government claim that the 50% tax rate that was in place between 2011 and 2013, raised much less income than expected. However it is worth pointing out that nearly all of the shortfall was accounted for by people withholding or not declaring income. When the rate was reduced to 45% in the 2012 Budget, many high income earners suddenly reappeared. Increased tax avoidance is no reason to reduce tax rates. The 50% additional rate represents a fair and equitable way to reduce the deficit .
As expected, many news outlets have alleged that this policy will cost jobs and and disincentivise "wealth creators". However it is worth examining just how many people this rate would actually effect. To look at Northern Ireland, the NERI Quarterly Economic Facts, give a breakdown of earnings in Northern Ireland in indicator 4.6b. This shows that only 2000 people could possibly be affected by the new additional rate. While small in number this group of 2000 earns as much per year as the 106,000 workers who earn under 10,000.
The 50p tax rate is asking a small group of the wealthiest in our economy to contribute modestly to rebuilding the public finances.