This house would implement an upper rate of income tax of 70% on incomes over £5 million
Ladies and Gentlemen, today my partner Oscar and I will be opposing the motion that “This house would implement an upper rate of income tax of 70% on incomes over £5 million”. I will be showing you why this tax restructuring wouldn’t work – why it would force the wealthy to leave the country, why it would be a catastrophe in the current economic and political climate and why the tax rate is where it currently is.
While Oscar will present to you more nuanced alternatives to the motion: looking at which other current taxes can be slightly reworked to get the money our country desperately needs.
First, I would like to be it abundantly clear. We agree this country needs more money to help run services which are in dire need of it – but we do not agree with the propositions proposed method
My first point Ladies and Gentlemen: would this tax actually work? This is a complex question to answer and must be looked at in several areas.
First, we must look at the people who would be affected by the motion. We are not talking about the top 1% of earners here, you need to earn £150,000 a year to be put in that club. There are currently 400,000 people who do earn over that amount – according to the daily mail – and last year they gave to the government through income tax £54.3 billion – that’s almost a third of all income tax revenue. But that amount is no where near the £5 million gold standard – how many people would qualify for this tax? Looking at the ‘Footsie 100’ – the top 100 companies with the highest market capitalisation on the London Stock exchange – we can see what their CEOs are paid. Its reasonable to think that the those in charge of the companies with the highest market influence will earn the most in the UK. The CEO of HSBC Stuart Gulliver earned £7.4 million according to the mirror last year. You might be thinking; this tax will apply to him? No, it doesn’t. Gulliver is smart – and has good accountants – he has a salary of £1.25m. Not £5m. The rest of his wealth comes from dividends from shares. The same is the case for all CEOs of the Footsie 100. They do not have a salary of over £5m. This tax therefore would not apply to them. But even if we did apply it to them, we wouldn’t be taxing their entire income, just their salary – which I’m sure they’d make increasingly smaller to avoid losing so much to the government. These CEOs won’t allow us to take their money easily – so we also must be smart. As Oscar will show you later.
Surely ladies and gentlemen, you can see that having a salary of over £5m is something no-one does. We won’t be getting their money through income tax alone. I’m certain forcing the wealthy to such a high rate of tax will mean that they will end up working almost for nothing. Well of course they’d receive all their money on the side, but the government will not be seeing any of it. So, ladies and gentlemen, who are the proposition taxing, and do they see that realistically this will be no-one?
Now let’s imagine there is a sizeable number of people in this tax bracket. Will they be willing to pay this gigantic and obvious tax? No. They will either rework the books, or they will leave the country. We must remember that we are living in a global economy. It is very easy for the wealthy to move to another country with more favourable tax laws. Why would they stay in the UK with a 70% tax rate while Saudi Arabia has 0% (economist)?
Back in 2012 President Hollande was meaning to put a 75% income tax on those earning over €1 million. France’s richest man Bernard Arnault left France for Belgium and others followed suite. Surprisingly, Hollande didn’t go through with his super tax.
The same thing would happen in the UK if we were to implement such an obvious and high tax rate. But we must remember our current political climate. It isn’t great. I’m not going into the highs and lows of Brexit – but it is an uncertain time.
Jaguar, Land rover, Nissan are three big companies that we know are stepping out of the UK. Other companies and the wealthiest in society are leaving – or contemplating their own exit due to uncertainty. We also have the UK’s richest man – Sir Jim Ratcliffe – leaving the UK to avoid £4 billion in tax.
In our current political climate, the wealthy are already leaving. So why force those who are staying here, to leave? We will just upset our already shaky economy even more.
This is further supported ladies and gentlemen by looking at the Laffer Curve. In short, increasing tax increases government revenue up to a certain point – this certain point is country specific as tax is very much a culture dictated concept, certain groups of people are willing to pay more tax than others. However, after this certain point revenue starts to decrease as those paying the tax actively try to avoid it – often leaving the country. Over the past 50 years upper rate income tax has changed a lot – currently it is at 45%. When the coalition government set it to that rate the chairman of the UK Office for Budget Responsibility commented that Britain was “strolling across the summit of the Laffer curve” – i.e. we are already at the optimum rate. Why ladies and gentlemen take us over the peak of the Laffer Curve?
My third point. Why do we want these people to stay? Again, in short, our economy is based on a circular flow of income. The government gives money to businesses, businesses employ people and pay taxes, and people from their earnings pay taxes and buy goods from business. The CEOs of large corporations therefore inject a lot of capitol into our economy. They give money to the whole cycle and due to the nature of our economy, the initial injection of capitol is multiplied up: the longer it is in the cycle, the more it is worth – known as the multiplier effect? Ladies and gentlemen why force the people pedalling the wheel of our economy to stop doing their job?
Today ladies and gentlemen, I have shown you how there will be very few people paying this tax. How important these people are to our economy and why we are already at risk of loosing them. Why ladies and gentlemen, drive away the stable bedrock of our shaky economy? Why ladies and gentlemen, reduce the multiplier effect? Why force people to pay a ridiculously high tax when we won’t get anything from it?
Ladies and gentlemen, lets fix our economy, not destroy it!
This house would implement an upper rate of income tax of 70% on incomes over £5M
Ladies and Gentlemen, following on from my partner Tom I will be presenting better alternatives to our current governmental funding crisis, Today I shall be arguing that stamp duty, dividend tax and a windfall tax are all far better solutions than the one presented by the proposition.
To reiterate I want to make it completely clear that we agree with the proposition that the government is in dire need of funds, especially for the NHS, but we completely disagree on how to go about getting this money. We need a far more creative and subtle method than simply just slapping a tax on a group of people that, like Tom has mentioned, are internationally mobile and will simply move away. We need to play a game of ‘cat and mouse’ if you will, beating the tax avoiders at their own game.
Our first way of doing this Ladies and Gentlemen is tweaking Stamp Duty which is a far better way of going about gaining these funds. So, what is Stamp Duty? Well, Stamp Duty is a tax that is levied at people who buy a property in the UK over a certain amount. The rates are zero if you are a first time buyer of house below £300,000. In other words, the poorer in society are not affected nor will they be after our improvement. If you are buying a second home the current rates follow a gradated scale ie it doesn’t scale linearly and hence the more valuable the property the more the tax increases exponentially. We will be looking at the top two bands ie houses above £925,000 as it logical to assume that the wealthy will be buying houses of higher value.
Property or lease premium or transfer value SDLT rate
Up to £125,000 Zero
The next £125,000 (the portion from £125,001 to £250,000) 2%
The next £675,000 (the portion from £250,001 to £925,000) 5%
The next £575,000 (the portion from £925,001 to £1.5 million) 10%
The remaining amount (the portion above £1.5 million) 12%
For example, if I were to buy a second house at the current rate for £2.0 million then the total tax would be £214,000.
Stamp Duty is far harder to avoid for both the rich and for money launderers than the inflexible and obvious one suggested by the proposition. Why is it so? Stamp Duty over the last few years has taken the limelight in stopping Russian money launderers from buying properties in London. It has also allowed the government to collect a significant amount of money from the wealthier in society. But these homes are far out of the price range of even middle-class UK citizens so the average citizens in our society will not be affected. The government made £2.4bn in the 3rd quarter of 2018 from just Stamp duty alone (Economist). Why don’t they put that on the side of a bus? Ladies and Gentlemen if we were to increase the tax on the upper two bands by 4% we would gain approximately £100,000 on very high end properties without the departure of our rich economic drivers as Tom mentioned would occur with the propositions tax.
Onto my second point Ladies and Gentlemen, we suggest that dividends tax is tweaked alongside stamp duty. Dividends are a sum of money paid regularly (typically annually) by a company to its shareholders out of its profits (or reserves). Another of the plethora of issues with the proposed tax can be highlighted in dividends. This is due to the fact that the motion clearly states it will be increasing ‘income tax’ yet most if not all of the CEO’s and other business people gain most of their money through dividends and not through a salary as Tom mentioned so it will not be taxed as much as the proposition hopes. The tax rate on the dividends of over £150,000 is 38.1%, which is the top band.
Basic £0 – £34,500 7.5%
Higher £34,501 – £150,000 32.5%
Additional £150,000 + 38.1%
This is a far larger tax than stamp duty and is the main way the government can tax the large business owners in the UK. If we again slightly increased dividends tax- and perhaps add a higher band, alongside Stamp Duty the government could be making far more money and yet business men and women will still stay in the UK just as they did in 2018 when the Conservatives increased dividends tax. Our improvement will ensure the revenue the government would get from these business people increases without being so obvious.
Finally, onto my third and final suggestion, a windfall tax could allow the government to receive the funds it desperately needs right now. A windfall tax is a tax levied on an unforeseen or unexpectedly large profit, especially one regarded to be excessive or unfairly obtained. We as the opposition alongside adjusting stamp duty and dividends tax, wish to implement a one time only cash injection from the top CEO’s in the UK that can be spent on struggling services such as the NHS, which we wish to call the NHS tax, creative I know. This tax will be of a certain price of which the government could decide. Big business men and women as Tom has mentioned, know that the propositions tax will be permanent and will forever take chunks of their income and following the Laffer Curve the governments revenue will decrease as they leave the country or try to avoid the tax. However the individuals with their companies heavily invested in the UK will not move away from our windfall tax. This is because our NHS tax is a one off which means it is not worth these companies moving their entire operations to avoid it, especially if it is so sudden. Furthermore, our tax is for a clear good cause which means these big business men and women can promote themselves and their companies as philanthropic due to their contributions to the NHS.
To conclude ladies and gentlemen, we agree that finances are urgently needed for our government, but we entirely disagree on the propositions method for the reasons outlined by myself and my partner Tom. We instead propose a more subtle combination of Stamp Duty, Dividends and windfall tax to cleverly squeeze money out of our high earning body through playing ‘cat and mouse’ rather than giving them one more reason to abandon us during Brexit like the propositions tax would.
Ladies and Gentlemen, support our NHS, support our struggling services and support the shaky economy by subtly taxing the wealthier in society not forcing them to leave when we need them most. Why Ladies and Gentlemen, support the proposition when our alternatives are far more realistic and most importantly achievable! Thank you.