Top 50p tax rate damages UK, say economists

 

DeAnne Julius: "We have got to be competitive with the rest of the world"

Twenty high-profile economists have urged the government to drop the top 50p tax rate, which they say is doing "lasting damage" to the UK economy.

In a letter to the Financial Times, they say it should be axed "at the earliest opportunity" to boost growth.

The tax is paid at 50p for each pound earned over £150,000 and affects around 310,000 people.

Critics say cutting the top rate at a time of cuts would be "monstrously unfair" and "phenomenally immoral".

Ministers say although the 50p rate is temporary, their policy is to first increase the income tax threshold to £10,000.

The chancellor has asked HM Revenue and Customs to look at how much has been raised by the 50p rate, but it will not be able to count this until this year's self-assessment tax returns are in after January next year.

The 20 signatories to the FT letter include two former members of the Bank of England's Monetary Policy Committee, DeAnne Julius and Sushil Wadhwani.

It is part of a campaign being promoted through PR firm Westbourne, which they say is funded by businesses concerned about the impact of the 50p rate.

'Mobile people'

Analysis

Key questions are being asked about the effectiveness of the 50% tax rate - but they are impossible to answer right now.

How much does the top tax rate bring into the Treasury?

We won't know till after self-assessment tax returns for the 2010/11 tax year have been received at the end of January.

HMRC will the work out how much has been raised - but even after that there will be imponderables.

We won't know how many people left the UK because of 50% tax and we wont ever be sure what impact they might have had on the UK economy if they had stayed.

To what extent has higher tax on the wealthy deterred entrepreneurship and job creation?

That wont be clear for a while, if ever - we need detailed growth data for the UK in comparison to other countries.

No wonder the chancellor is sitting on his hands, for now at least.

The economists argue that the tax rate makes is making the UK "less competitive internationally, and making us less attractive as a destination for both foreign investment and talented workers".

They call on the coalition, "to drop the 50p tax at the earliest opportunity as part of a package of measures to stimulate growth".

In a speech on Tuesday, Chancellor George Osborne said recent economic data had led to short term forecasts being revised down over recent weeks - but pledged to stick to his budget deficit-cutting plans.

The previous Labour government introduced the 50p tax rate on high earners - it was forecast to raise £1.3bn in 2010-11, £3.1bn in 2011-12 and £2.7bn in 2012-13.

Mr Osborne decided to keep it in his first two budgets but told the BBC last month: "I've said with the 50p rate I don't see that as a lasting tax rate for Britain because it's very uncompetitive internationally."

Highest tax rates compared

UK - 50%

Top UK trading partners

Netherlands - 52%

Belgium - 50%

Germany - 45%

Italy - 43%

Ireland - 41%

France - 40%

USA - 35%

Spain - 27.13%

Other

Australia - 45%

Japan - 40%

Switzerland - 11.5%

Source: HM Revenue & Customs 2009/OECD 2010

Mr Osborne would have to square the decision with the Conservatives' coalition partners - the Liberal Democrats. Lib Dem Chief Secretary to the Treasury Danny Alexander told the BBC in July that anybody who believed abolishing the 50p tax rate was a priority was in "cloud cuckoo land".

Lib Dem Business Secretary Vince Cable has said that if the 50p rate is axed, tax on high value properties may have to rise - perhaps through council tax or stamp duty.

And on Wednesday senior Lib Dem backbencher Tim Farron, the president of the party, said tax cuts for the wealthy "would be phenomenally immoral".

Elsewhere in the world, wealthy individuals including France's richest woman Liliane Bettencourt and the US billionaire investor Warren Buffet have both said they would be happy to pay higher taxes.

Brendan Barber, general secretary of the Trades Union Congress, said a "handout to the wealthiest in our society" at a time of cuts would be "monstrously unfair".

Shadow Chancellor Ed Balls said "the idea that the priority is the people on the highest incomes... doesn't make sense".

Ed Balls: "Those economists are not living in the real world"

"The Treasury and the Institute for Fiscal Studies have both said the top rate of tax raises money - that's why it's there," he told the BBC.

"If George Osborne really believes in his independent Office for Budget Responsibility, why don't they do the report? If they say that it doesn't actually raise any money, that's a different kettle of fish.

"But I have to say, people in the real world looking at this, what they'll be saying is, people who earn £150,000 should be paying a bit more tax when they are seeing their budgets squeezed, energy prices up and unemployment up as well."

 

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  • rate this
    -9

    Comment number 3156.

    Simply; if u believe in socialism and the government employing people then the tax should stay. If u believe in capitalism where people should be allowed to become rich because some of them eventually create new businesses that employ people then u should lower the tax.
    Frankly as things stand it will be a long time before I return to the UK. Shame because I'm a high earner and fond of my country

  • rate this
    +2

    Comment number 3144.

    It is surely a bit short sighted to just look at the higher rates of tax applied. Instead we should be looking at net income after taxation i.e. taking on board some of the higher salaries that are paid out. When we learn about some of the ridiculously high wages paid to top bankers, football players, TV presenters, film stars etc then perhaps the higher tax rates become more justifiable.

  • rate this
    +3

    Comment number 3143.

    3139.The_Gambler

    From what I've learnt tonight it seems that Economics is pretty vauge if you're looking for accuracy. The fact that everything is a gamble and risk management suggests to me there is no scientific method as anything could happen no matter what you do. Fair enough it may be a science but to me science is reliable, logical and rational

  • rate this
    +59

    Comment number 2290.

    Looking at the figures most of the more successful of our EU partners have similar,if not greater rates of top rate tax.
    If the govt wishes to INCREASE its tax take maybe closing down tax loopholes would be a better approach here?

  • rate this
    +59

    Comment number 2260.

    Of course raise the personal allowance to 12K. This was LibDem policy before the election (10K threshold), shamefully reduced to 6K after. It would increase the take up of lower paid jobs, reduce unemployment, reduce government handouts, morally give people a livable income before they are taxed,encourage spending directly into the economy,saving and the reduction of debt where it is most needed.

 

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