Andrew Sentence is a former member of the Bank of England Monetary Policy Committee, the body responsible for setting UK interest rates. He is now Senior Economic Adviser at PwC and his latest book Rediscovering Growth, is part of the Perspectives series.
He spoke to the Prospector on a range of economic subjects, ranging from domestic concerns to macroeconomic policy. The interview will be published here in full over the coming days
Jay Elwes: What do you think of Labour’s plan to introduce a 50p rate of income tax?
Andrew Sentance: If it had been more effective at raising money, when it was introduced for a few years after the financial crisis, I think there might be a stronger argument. It seems for a variety of reasons that it wasn’t very effective at raising money. The worry I would have is that it creates the impression that the UK is not an attractive place for business activity and for various forms of high value-added business which generate high incomes.
While some people might say “well 45/50p if you’re earning a lot of money, what difference does it make?” we have to remember that we are in a very competitive global environment. It’s not just the tax measure itself, it’s the signal it sends and the danger that it is interpreted as part of a broader anti-business package of measures.
We should be looking at other ways of raising extra revenue—not pushing up tax rates but, insofar as we can, broadening the tax base. That’s the direction I’d be looking—towards broader reform of the tax system. If you’re making broader tax reforms then you can find increased revenue by widening the tax base.
I think the bigger challenge for the UK, though, is getting the ratio of public spending in the economy back down to the sorts of levels that we were running at before the crisis. I think there is limited scope for us to make big increases in the percentage of GDP that we can get from taxation at the moment.
JE: So if given the chance, how would you change the tax system in Britain?