That 50p tax

The elephant trap set by Brown to divide the Tories, as well as delighting his own left wing, will according to experts produce little or no extra revenue for the government. Indeed, it could actually reduce it, for the reasons I gave yesterday. (When tax was last at 50%, in 1987, and the richest 1% contributed 14% of tax revenue, Nigel Lawson cut the tax to 40%. The result was that the top 1% contributed 23% of tax.)

The Tories know these possibilities, are natural tax cutters and are keen to keep our best talent here. (Top tax rates elsewhere include 41% in Ireland, 40% in France and Switzerland, 35% in the USA and 29% in Canada. People with saleable skills could be attracted to these, not only because of the higher retention of income but also because these countries are likely to be able to finance their work sooner than the UK will be able to.)

The economic case for reversing the 50p tax is strong, almost unanswerable. Then why do the Tories not come off the fence? The answer is that the public emotionally identify all top earners with the dreadful bankers, whom they blame only partly correctly as the cause of our troubles. The Labour left are also ready to attack the "toffs" at will. Neither groups accepts the wider economic benefits mentioned above.

The Tories thus have a dilemma. If they propose cutting the tax, they will be branded as helping the rich, and comply with Brown's strategy of creating an emotional dividing line. If they don't, they will have to wait until they are in power to reduce the tax and increase revenue, but by then many excellent brains will have "drained".

They are probably right to play the tax down. It is probably more important to get rid of this dreadful government, even if the recovery is slightly delayed.

A final word is that we may be looking at the wrong group to see where real damage will be done. As I pointed out, the day is coming when all earning over £100,000, many more in number, will be hit with larger disincentives. They will lose personal allowances on a progressive basis, with a much higher effective marginal tax rate over the initial personal allowances than even the 50p.

It could be worth the Tories protesting on their account.