Here’s something simple for the government to try and understand.

Higher taxes mean that people go abroad to work, meaning that their tax revenue has been lost completely. This brain drain makes companies less effective. This could make them less profitable. They might downsize (losing jobs) or close down. Whatever the small number of greedy bankers have done, the financial centre of London is by far and away the most productive and profitable part of the UK’s revenue base – still.

Higher rate tax people normally have sophisticated tax efficient methods to reduce the amount of taxes they pay – when taxes go even higher, their tax efficiencies are adapted to (often) reduce the amount of tax they were paying in the first place (offshore, equity options etc). Higher taxes often remove the incentive for higher rate tax indivuduals to work harder, so they work less hard and pay less tax (smaller bonuses). It’s a fact, making tax higher ends up with lower tax revenues in the end.

Higher tax means lower incomes for the people (whether large lumps from the higher earners or smaller amounts from the middle and working classes). They spend less. This is exactly what the government want to avoid. They want people to spend and stimulate the economy. If they don’t, businesses go bust (for lack of sales), their people are laid off, more government assistance is required for those people. Tax revenues are lower too.

However, despite this, the government have chosen to increase the rate of tax for higher rate individuals, thus breaking their manifesto promise and removing any chance of winning the next election. How bizarre.

It’s difficult to know what to do – however, this was not the correct option.