Higher tax rates will hold back economic growth If the pledge by Ed Balls, the shadow chancellor, to reintroduce the 50p top rate of income tax was intended to shore up his dwindling credibility, it is likely to prove self-defeating. It is a measure of Labour's inability to construct a credible economic policy that it should resort to what Lord Myners, a Treasury minister under Gordon Brown, rightly condemns today as a return to "old Labour and the politics of envy." Mr Balls claims his purpose in imposing a 50p tax rate on those earning more than £150,000 is to "finish the job of getting the deficit down and do it fairly." The reality is that his plans would cause a significant reduction in Government revenue, making his declared objective more difficult to achieve. It is revealing that last summer, during the first month in which the rate for higher earners was reduced to 45p, the Treasury received an extra £1.3 billion in income tax. This lends support to the hypothesis of the "Laffer curve": that there is a point at which higher tax rates become counterproductive. Mr Balls might not be amenable to the arguments for low taxes advanced by Ronald Reagan, but he might have taken notice of President John F Kennedy's "paradoxical truth," when he said that "the soundest way to raise the revenues in the long run is to cut the rates now." One of the chief ambitions of any government should be to reduce the tax burden on the poorest in society. That applies especially today, when the phenomenon of the working poor is a growing problem. The Coalition deserves credit for addressing this issue, not only through welfare reform but also by raising the tax-free threshold, to the benefit of nearly 25 million working people on the basic rate. The one policy that will not help lower-income taxpayers is increasing the top tax rate; indeed, as it is known to reduce revenue it is likely to aggravate their situation. This year, with the highest rate cut to 45p, the top 1 per cent of earners is contributing 29.8 per cent of all income tax. In 1986-87, when the top rate stood at 60p, the richest 1 per cent contributed only 14 per cent of income tax. The conclusion is clear. Punitive tax rates are wrong both in practice and in principle. It is regrettable that Labour, concerned by its modest opinion poll lead and the unfavourable public perception of its leader, has retreated to its comfort zone of class warfare and its former preoccupation with making the rich poorer rather than the poor richer. In a globalised economy, high tax rates simply drive investors overseas, and personal and corporate assets offshore. Labour's proposal would send out the negative message that Britain penalises aspiration, enterprise and success. The shadow chancellor no doubt hopes to strike a populist chord with voters struggling to make ends meet, and it is possible that he will succeed, at least in the short term. The hope must be that, as the recovery gathers pace and Labour's tax plans are subjected to ever more intensive scrutiny, Mr Balls finds that there is dwindling enthusiasm for fiscal policies that make no sense.