Why today's new Robin Hood tax will hurt those in need

Today the government's income tax increase comes in. Those earning more than £150,000 will now have to pay 50% income tax. There are 300,000 people earning that much in this country. A further 600,000 who earn more than £100,000 will have their personal tax allowance knocked down. The government's hope is that these measures will together raise £3.9bn by next year. And, of course, it's a massively populist old school Labour-playing-Robin-Hood stance: tax the rich to help the poor.

But the problem with trying to tax the rich is that they're too good at staying rich. I've already spoken to two top earners who are going to be hit heavily by the increase. One is in the process of securing a Chinese passport (he visits once a month and is falsely purporting he now lives there) so he can sidestep all those nasty issues of having to stump up extra cash. Another family are planning on moving to Hong Kong within the next year so they can safe-house as great a proportion of their paycheques as possible, ready to put their kids through private school when they return to English soil.

And therein lies the rub. For the most part, the rich aren't rich because of a happy series of serendipitous turns of fate. It's because they've spent years learning how to hide away pennies and reduce bills. They employ the most cunning accountants to find tax loopholes and little pockets of the Earth where they can squirrel away their fortunes. They've got teams of financial aides and advisors telling them that if they invest here and buy their foreign car number-plates from there, they can skim this much off their tax bills.

And even those who are a few hundred thousand short of an army of financial geniuses to help them out tend to have friends who can pass on the insider tricks. Let's be honest, most of the broadsheet newspapers give tips in some form or another on how and where to put your money to ensure it grows as fruitfully as possible within the bounds of the law.

The problem with bringing in regulation like this is, and always will be, that the top financial minds are more agile than the law will ever be. They will always be able to out-manoeuvre new regulation and keep more of their money to themselves than the government wants. And, ultimately, that means a tax like this hurts people further down the chain. Sure, there are plenty of you who are earning a little above the £100,000 or £150,000 mark who don't have options on Swiss bank accounts and Chinese passports, who will definitely feel the full sting of this increase. But there are even more of you who will start feeling choked by a withdrawal of investment in your growing companies.

Because if the very top earners are discouraged from conducting their financial matters in the UK, they'll just go elsewhere. Which means less money in this country for taxes, and for fledgling businesses in need of investment. The Institute of Directors maps out this damaging shift succinctly in their latest report:

"We believe the 50p rate is likely to raise little or no tax overall in the short-term, and lead to lower overall tax revenues in the medium to long term.

Why? For the following reasons:

1.    There are obvious tax planning opportunities that are likely reduce the revenue raised;

2.    It is likely that some high income individuals will move to more competitive tax jurisdictions, thus shrinking the income tax base;

3.    The effect of the 50p rate will be to tempt the directors of multinational groups to take their parent companies outside the UK, thus shrinking the corporate tax base."

Doesn't sound too good, does it? We really hope that the government's measures don't pan out like this. But we fear they will, and the knock-on effects will be less overall tax generated, less financial activity in the UK, and, as a side-effect, less investment in UK start-ups.

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