Danny McCance 19 Apr 2017 02:30pm

Labour pledges to increase taxes for the rich

The Labour party has said that it will introduce a tax on those earning over £70,000, as well as raising taxes on big companies

The party has also suggested a maximum wage cap in the form of a “pay ratio”.

Speaking on the BBC’s Today programme, shadow chancellor John McDonnell spoke of Labour's plans to make the tax system “fair” - shifting the burden of tax from middle and low earning individuals to the higher earners.

However, McDonnell has been criticised for targeting a group which already contributes substantial amounts of tax.

“I think it’s important to know that the very highest earners already contribute what I would deem as a disproportionate amount to the pot”, said Oliver Parry, head of corporate governance at the Institute of Directors.

“The example of France shows that when you look to tax that demographic more it might encourage tax avoidance schemes and also has the net effect of encouraging the high earners to move away.”

On the subject of a maximum income, McDonnell defined the party’s strategy, rather than being a cap on income as being a “ratio with regards to the maximum that will be earned by chief executives, directors and others in relation to the average pay of their workers.”

“It will be a pay ratio and that in itself will set a cap in terms of what the maximum earning will be within that company in relation to the average workers pay, because we believe in fairness in our economy” he added.

“We have been broadly very supportive of pay ratios, long ago they were introduced on a voluntary basis through the UK corporate governance code,” commented Parry.

“The important thing with pay ratios is that the figures on their own will tell very little about the actual difference between the medium pay and the highest earners pay, so what you need to do is provide context around that.”

“Take for example Tesco, where the pay ratio will be a lot more due to the company having a lot of minimum wage earners, whereas at somewhere like Goldman Sachs the pay ratio will be less because bonuses are higher and base pay is higher.”

“There has to be a lot of context, however only on a voluntary basis and only through a code”, Parry added.

McDonnell also mentioned tackling evasion and avoidance, and “ending tax giveaways” to corporations and the rich.

Last month, he said in an interview that the Labour government would force the richest taxpayers to publicise their tax returns, in an attempt to improve transparency and openness.

McDonnell's comments to the BBC come in the wake of prime minister Theresa May’s call for a snap election yesterday, due to be held on 8 June.

In her statement yesterday the prime minister said that despite saying previously that she would not go to the polls until the end of the current term in 2020, she had reluctantly come to the conclusion that she needed to call an election to bring an end to opposition to the government’s stance on the Brexit negotiations.