The politics of envy have returned to Britain with a vengeance. The role of the financial sector in the recent crisis has been transformed into a bitter resentment of the wealthy – a trend that many politicians have exploited.
In some ways George Osborne did well to resist the pressure to soak the rich. He took the courageous step of reducing the 50% income-tax rate for high earners to 45%. Most economists have long argued that such a high rate is counterproductive. In the longer term it actually reduces revenues by deterring effort and encouraging avoidance strategies. Talented individuals – and the firms that wish to employ them – are also deterred from locating in the UK.
While the cut in income tax was a welcome victory for economic logic, there were other measures that are likely to do significant damage. The hikes in stamp duty for properties worth over £2 million send out a very negative message for wealthy individuals thinking of settling and basing their businesses in Britain. Entrepreneurship is a key engine of economic growth and produces the innovations that improve living standards across the board. But if entrepreneurs find themselves targeted by special taxes imposed by predatory governments they are likely to conduct their activities elsewhere. The UK should welcome wealth creators rather than driving them away.
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