Jeremy Corbyn announced this week that if the UK’s Labour Party won the upcoming general elections, one of his primary moves would be to levy a ‘fat cat’ tax on wealthy Brits in an effort to curtail excessive pay.
On Tuesday, according to The Guardian, the UK Labour Party released a manifesto that introduces “a proposal that aims to disincentivise excessive pay by charging companies a 2.5% levy on earnings above £330,000 and 5% on those above £500,000.”
More specifically, this tax will be based on a combination of “basic salary, shares, bonuses and pensions rolled together.”
As reported by The Guardian, this measure would force UK firms to contribute “£4,250 extra for every worker receiving £500,000 in pay and perks,” and £29,250 for those making more than £1 million annually.
The goal is to tax employers rather than the labour class and make companies think twice before overpaying their executives and upper management.
Part of these additional funds are expected to be channeled towards the UK’s National Health Service (NHS), which would receive a £37 billion boost in case of a Labour victory.
Faiza Shaheen, director of the Centre for Labour and Social Studies, originally brought up this idea to the Labour Party, saying: “Year after year we’ve seen pay at the top rise, while average wages have stagnated. Shaming companies publicly has failed to change the status quo; an excessive pay levy attempts to force companies to think twice about unfair wages at the top while generating income for our public services.”
This specific levy would be part of a more extensive tax package that would also include raising the income tax to 45 percent for those individuals making more than £80 thousand, introducing a financial transaction (‘Robin Hood’) tax and stopping Tories’ plans to lower or altogether eliminate corporate and inheritance taxes.
Here’s a table courtesy of the UK’s Institute of Fiscal Studies (IFS) summarizing the income tax changes proposed by Corbyn.
Speaking about his proposed policies, Corbyn said, “People want a country run for the many not the few and for the last seven years, our people have lived through the opposite -- a Britain run for the rich, the elite and the vested interests.”
“They have benefited from tax cuts and bumper salaries while millions have struggled and been held back,” he added.
Corbyn went so far as calling the Tories “the nasty party, the party of prejudice, the party of the rich, the party of the tight-fisted and the mean-spirited.”
Plenty of Criticism to Corbyn’s ‘Fat Cat’ Tax
Many analysts and politicians have criticized Corbyn, his ‘fat cat’ tax and other of his proposed policies.
Tim Knox of the Centre for Policy Studies said, “High earners are the geese that lay the golden eggs: the top 1 per cent of taxpayers already pay about 30 per cent of all income tax.”
“Forcing them to pay more might be politically tempting but is economically crazy. Many of ‘the geese’ will either fly off to more attractive countries or just stop laying the golden eggs,” Knox said.
“Mr Corbyn’s plans would simply encourage more of them to leave, meaning that they will pay less tax, employ fewer people and spend less money in UK shops and services,” he added.
Furthermore, former Tory cabinet minister John Redwood agreed with this sentiment, arguing, “It is well understood that you get more money out of the rich if you charge internationally competitive tax rates. If you try to penalise the rich they don’t stay and pay – they find ways round it or go elsewhere.”
Referring to Corbyn’s proposal, chief secretary to the Treasury David Gauke was less diplomatic, and said, “His economic ideas are nonsensical, his views on national security indefensible...Jeremy Corbyn has made so many unfunded spending commitments it is clear that Labour would have to raise taxes dramatically because his sums don’t add up.”
Finally, among the voices of dissent, John O'Connell, chief executive of the TaxPayers' Alliance, said, “This entire manifesto is based on the clearly absurd belief that businesses can be repeatedly hammered with massive tax increases and crippled with regulation without any wider impact on the economy, jobs and investment.”
“If even a handful of these disastrous ideas were implemented it would mean misery for the many and employment for the few,” O’Connell added.
Election analysts and several polls expect Teresa May to win on June 8th, and many predict that the Labour party will have difficulties amassing votes and might even lose close to 120 seats.
According to John Curtice, professor of politics at Strathclyde University, if this happens, “it would be Labour’s worst result since the 1930s.”
What is your opinion on Corbyn’s Labour Manifesto?