ConDem Fifty Pence tax reversal was premature!

The final weekend of January saw the so-called big horror emerge that Labour will reinstate the 50p in the pound tax rate  for those highest earners!

By getting to the heart of the issue, there will be those people who will instinctively be for the highest earners probably paying even more than 50p; there will also be those who consider such a move to be the road to uncompetitiveness.  Ultimately, the main reality a government of any colour must reconcile is what level of taxation will produce an optimum level of revenue for the exchequer.  It is a very similar pressure to a business on setting it's unit sales price, whilst taking on board it's costs to maximise profit.  The main difference here for a government is not just a question of financial cost, but also one of public perception.

The fact that there are so few people who would see their tax rate increase, I would suggest the 50p tax rate will influence the voting intentions of very few based on how the policy would actually impact their wallets and purses.  If there were to be a likelihood though that this tax increase could scare business off from inward investment into the UK, then all ordinary citizens should be concerned.  INWARD INVESTMENT ULTIMATELY MEANS JOBS!

The aftermath of this announcement by Labour's Shadow Chancellor Ed Balls, has seen the predictable responses from the Conservatives and some sections of the UK Business Community, including the Confederation of British Industry's Policy Director who referred to the policy as one which could put off talented people from coming to the UK to invest.

Let us not forget though that the decision by the ConDem Government to scrap the 50p rate was not universally popular amongst the UK Business Community in the first place.  Former Marks and Spencers Boss, Sir Stuart Rose indicated in September 2011 that there was no credible case in scrapping the 50p rate, against the backdrop of difficult economic times we were living in.  IN FACT SIR STUART ALSO INDICATED A WILLINGNESS TO DEBATE WHETHER HIGH EARNERS LIKE HIMSELF SHOULD IN FACT PAY MORE TAX!

With the UK economic outlook now generally looking more positive, is the case really credible to now put the rate back to 50p?  Sir Stuart Rose appears to have now changed his tune on the 50p tax rate, whereas both main UK Political Parties have been quick to highlight opposing sets of data in support of each other's case.  Reading between the lines, it is probable that the policy won't raise a huge amount; it also won't see any reduction in the amount of taxation that will be collected in a worse case scenario.

The case for re-instating the 50p tax rate comes down to the cost which all governments of different colours must weigh up in terms of the cost of public perception.  Most ordinary hard working Britons knew all too well that an era of austerity was on the horizon in 2010, whatever the make up of the next government.  WHAT RANKLES SO MANY PEOPLE THOUGH IS THAT THERE IS A GOVERNMENT FILLED WITH PEOPLE WHO ARE EDUCATED IN PUBLIC SCHOOLS, WHO SIMPLY CANNOT UNDERSTAND WHAT IT IS LIKE TO HAVE TO STRUGGLE AND FIND THAT EXTRA MONEY WHEN A BASIC LIVING COST INCREASES!

In a series of interviews in which Ed Balls has given in the aftermath of the 50p announcement, it is quite clear to me that the policy is not a return to Labour policies of a bygone era which clearly did make a compelling case of delivering uncompetitive tax policies.  It is particularly important to highlight Balls has a preference for taxes to be lower not higher.  However, the UK still has a budget deficit to address in the here and now.

Ed Balls will no doubt need to do much more on the run up to next year's general election in spelling out other specifics of how Labour's economic policy will be different to that of both the Conservatives and the Liberal Democrats.  What a prospective return to a 50p tax rate will offer is a symbolic recognition that the Government of the Day does have a sense of understanding of what ordinary folk are going through.  THE CONDEM COALITION DECISION TO REDUCE THE 50P TAX RATE WAS FAR TOO PREMATURE!