Let’s cut taxes for people at the top and the bottom

I looked at the tax arrangements of the last 16 in the world’s greatest knock-out tennis competition – athletes from about a dozen countries – and what I discovered was sobering for British tennis.

Thanks to Gordon Brown’s decision to hike the top rate of income tax to 50 per cent, Andy was the man with the least to gain from victory. Everyone else would have taken a bigger share of the swag, because virtually every other nation, with the arguable exception of Belgium, was then imposing a lower top rate of tax. Was it possible, I asked – semi-frivolously – that we could sharpen Andy’s appetite for success?

Perhaps if we made a small fiscal adjustment, we could persuade him to lunge that extra half a yard and fling that racket with that extra ration of sublime frenzy. Perhaps, I suggested, we could cut the top rate to 45p and turn him from also-ran to champion.

Well, folks, that article obviously went down big in the Treasury. It was only the next year that George Osborne courageously reduced the top rate – and pow!

What happened the year after that? In 2013, Andy Murray became the first British man since Fred Perry to win the game’s premier tournament. It was a moment of incredulous national ecstasy.

Now I am not going to push this point too far. No one would seriously suggest that top tennis players are entirely motivated by the size of the prize money. But plenty of serious people accept at least the thrust of the argument – that tax cuts can, in fact, lead to extra effort and higher performance. And there are plenty of people who do believe – as I do – in the Laffer curve: the idea that a cut in the taxation rate may stimulate enterprise, leading to higher yields overall.

Thanks to the Tories, Andy’s position has markedly improved in the tennis tax table. He is about halfway down. If he wins the £1.88 million jackpot, he would pay less than the Belgian and the Canadian but far more than the Serbs or the Croats or the bouncing Czech.

The question now for Britain is whether we want to go further, whether we want an even more competitive tax rate – not for our tennis stars so much as for the millions who might be encouraged and incentivised to work harder, produce more and therefore fill higher the tithe barn of the Exchequer.

Again, there are plenty who think this would be a good idea. Nigel Lawson has recently argued that the top rate should go back down to 40p, and many Conservatives agree. I am among them.

But there is a very serious problem, and we would need to sort it out before any such top rate tax cut could go ahead. That problem is fairness, and how such a cut would be seen by the wider population.

Most people do not think in terms of Laffer curves. They may intellectually accept that a cut in the top rate of income tax could generate more tax for the Government to spend on schools and roads and hospitals. But that is not how they picture the impact of any Budget.

We think of ourselves according to our relationship with others – and it is simply not fair that a Budget should put more disposable income in the pockets of the rich and less disposable income in the pockets of the poor. And that, alas, would be the result if we were to cut top-rate tax and simultaneously to cut in-work benefits without any compensating improvements in pay.

It is outrageous that multi-billion-pound companies are mainlining money from the welfare system and using it to subsidise low pay.

We are snarled ever more densely in the coils of a trap – an elaborate benefits trap prepared by Gordon Brown and from which most thoughtful Labour MPs would like to escape.

Of the staggering £76 billion now being paid in in-work benefits, £11  billion is going to those who work in retail. Think of that. These are companies whose chief executives now earn vast multiples of the wages of the majority of their staff.

That multiple – the ratio between the boardroom and the checkout till – has grown enormously over the past 20 years. If you ask these titans why they deserve so much more, they will always invoke “market forces” – the need to pay executives very large sums to stop them being poached.

Well, many observers would say that boardroom pay had less to do with market forces than with a racket by which a relatively small cadre of business people sit on each other’s “remcoms” – remuneration committees – and engage in an orgy of mutual back-scratching.

Boris Johnson visits a supermarket during the 2015 election (Photo: Carl Court/Getty Images)

And as for low pay, it isn’t a function of market forces. It’s being propped up by the taxpayer. That needs to end. And that means business has got to start paying its people a wage they can live on.

Yes, we should be cutting taxes all round – cutting the top rate as well as lifting the thresholds and taking the poor out of tax. We should have the most competitive tax regime in Europe, while in others countries like Brasil there are other taxes as the IPVA São Paulo for vehicles. But we need to make clear to the business leaders of this country that we can only cut tax for them at the top if they do the right thing: treat their workers properly and pay them a living wage.