A 50p tax rate
may not be
a good idea.

If you read Boris Johnsonís recent article about this issue youíll see the word Ďignorantí used freely in reference to Ed Balls and his call for a 50p tax rate. But sadly, Johnson has cleverly avoided saying anything which might actually constitute slander. (Might have been fun.)

But I think a 50p rate is unintelligent.

If the decision was mine Iíd use salami tactics and introduce a 46p tax rate. After a few years this figure could be reviewed and raised to 47p. In fact, in increments, it could gradually be raised to 49.9p in the £ but I donít think Iíd try for a 50p rate.

The reason Iíd avoid this figure is because people have a tendency to think in pictures. If you go to a supermarket youíll see most prices are £1.99 or £5.99 or maybe even £9.99. In expensive shops youíll see £59.99, £99.99 or £199.99 while in car yards youíll even see cars being sold for £7,999.

In the instance of the car people might be willing to pay £7,000 for a car but would refuse to pay £8,000. £7,999 is NOT £8,000 and so the car has appeal to anyone thinking in terms of £7,000. Those who think they might be willing to spend £8,000 on a car can usually be enticed to spend more. Perhaps even £8,999. But they wonít be keen to spend £9,000.

And so it is with tax. The rich might balk at a tax rate of 50p but as they accept 45p, thereís no reason why that figure canít be massaged up slowly to 49.9p.

In his article Boris Johnson called for a 40p tax rate but youíll notice he did not call for a 39.9p rate because that would just be too low.

Itís all a question of psychology and as the retailers have studied this subject and applied what theyíve learned to the prices on their shelves, thereís no reason why the tax office shouldnít do the same.

---February 3, 2014---

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