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\'Raising tax is economic madness. Slash the public sector instead\'

Cover of  by Peter Hargreaves

'Raising tax is economic madness. Slash the public sector instead'
Fundamentalist view: A 50pc rate will not increase the tax take but will drive wealth creators abroad, says one of the City's most successful entrepreneurs.

By Peter Hargreaves
Published: 30 Jun 2009

There is unsurprising public apathy about the proposed 50pc tax band (or 51.5pc if we add in National Insurance contributions).
The prevailing attitude is probably "it will be the bankers who got us into this trouble who will be most affected". But I wonder whether people would show more concern if they knew the long-term damage that could result from this vindictive tax.
First, there will be a change of attitude about our tax regime. Since the 1980s, when higher rate taxes were brought down to 40pc, most people eventually became reasonably happy about their tax burden. Once the perception changes to a realisation that we have a high-tax regime, there will be serious economic consequences.
The black economy will flourish. It is not the new 50pc taxpayers who will result in loss of revenue as they seek avoidance measures; it will be the rank and file, whose attitude will be changed for decades. It took a decade for people to accept that we had a low-tax regime; it will take only until April 6 2010 for people to change their views.
The consequences for the economy are dire at all levels, especially in the City of London. The City attracts bright young people from the entire globe and while the rewards are tantalising the job demands are severe in both knowledge and hours.
Many of the salaries paid for these skills have already declined in world terms as we have seen sterling fall. Remember that these people are quite happy to work in New York, Zurich, Singapore or any major financial centre. The cost of living in London hasn't fallen.
Their skills are easily transferable and if their new country of employment has lower rates of tax, they will enjoy a dual benefit of a higher income and the ability to keep more of it. Many world financial centres would be keen to win back business from London.
Elsewhere, people may decide to increase their leisure time on the basis that they lose more than half of the last tranche of their income.
All this adds up to high certainty that the tax take will go down. In addition the new tax regime will add to complexity and the cost of collection, not least in the crazy new pension rules which are nothing less than vindictive. It is vital in any economy to encourage savings. Complicating the most desirable way to save for retirement ? indeed reducing tax benefits when the eventual income will be taxed at the highest marginal rate ? is an act of economic vandalism.
Yes, I am sure some people will choose to leave these shores. The long-term damage and the loss of their skills, their income and the eventual capital gains and inheritance tax will cause this nation to suffer for decades to come. Remember, many people who relocated to areas of lower tax in the 1970s have still not returned.
The sad thing is that closing the budget deficit is a simple matter. The public sector is overmanned on a massive scale. The public sector should be stopped from advertising or using consultants. Public sector flexitime should be abolished ? many government buildings are empty on a Friday. The two-week sick pay regime should be halted ? many public employees take them as holidays. Their pay should be looked at closely ? it is almost certainly 30pc higher than in the private sector.
Since few parts of the public sector work well, why do they get bonuses? I wonder what revelations we would find if the public sector's expenses were exposed. In addition to all that, just closing the quangos would save £130bn a year ? not one of them does anything of any value or use. Sorting out the budget deficit is as simple as the last seven sentences.
Of course our esteemed lame duck leaders would claim that that would result in cuts. Absolutely not. Not one nurse, one doctor, one policeman on the beat, one soldier need lose their job ? only the army of incompetent twerps who sit in meetings above them. The small percentage that we need should also have their pay looked at closely. Many of them are paid considerably more than they are worth.
It is amazing to me that the ministers haven't noticed the number of lackeys who fuss around them and who are totally unnecessary. If they didn't allow these lackeys to book their diaries full of appointments they might actually get into the departments for which they are responsible and find out how many were actually sat at their desks.
My guess is that at any one time no more than 20pc, which suggests we could sack 80pc of them. I would rather pay them the dole than the stupid salaries that they seem to think they are worth.
I would like to put this idea forward. We should publish every public sector worker's salary, the amount they take on the sick, which of them are on flexitime, how many holidays they get and their job description. After all, they work for us ? a fact they have forgotten. Shouldn't we know what they are doing, how much we are paying them and how hard they are working?
You will be absolutely amazed to find out that if we put those measures in place we could actually have a flat tax of 30pc and then watch the economy really motor. The decision is simple: raise taxes and see the end of prosperity, or reduce taxes and enjoy the return to prosperity. I know which option appeals to me.

Peter Hargreaves set up wealth managers Hargreaves Lansdown in a spare bedroom before the company floated on the stock market in 2007, valued at £800m. His book 'In for a Penny' is published by Harriman House at £9.99.

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