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
    0

    Comment number 3163.

    After this so called coalition came in I emailed the PM. Between my partner and I we gross a larger salary then most but not £150m or more. I suggested for people earning 80m to 150m a two year tax increase of 1/2 % and 1% for over 150m for a period of no more than 2 years. But we have to remember our Gov't is made up of a lot of rich people so I doubt that the 1% will stay in force,

  • rate this
    +1

    Comment number 3162.

    Yes it does.

    Even the 40p rate is harmful. The USA has been successful because it has a consistent rate of 25% income tax (state + federal) for years which encourages people to keep on working throughout a year.

    The self-employed in particular can decide to down tools when they hit a tax threshold and that is a bad idea for an economy.

  • rate this
    -2

    Comment number 3161.

    This is absolute rubbish - if it is so damaging then why are these selected few not moving to Jamaica or Antigua or some other low cost tax haven ? - They know when they are well off !

    It should be raised to 75p, and for the utter rich, a new band should be introduced to equalise the system, even this group agree with this !!

  • rate this
    0

    Comment number 3160.

    Does a high tax rate harm the economy?

    Nope - overpaid 'economists' harm the economy.

  • rate this
    0

    Comment number 3159.

    Economists have a proven track record of failure and are out of touch with the real world. Ignore them.

  • rate this
    0

    Comment number 3158.

    Redrebel, you too were struggling with the maths. It means that when you lose the personal allowance, an extra £7,000 is taxed at 40%. but this is phased out at the rate of £1 of allowance per £2 earned. This in effect is an extra tax of 20% until the tax free allowance has been completely exhausted at around £114,000. It's all there on the HMRC website if you need to look.

  • rate this
    0

    Comment number 3157.

    DannyF I'll say this very slowly because the maths are very complex. When you earn above £100,000, mr Darling in his infinite wisdom decided to withdraw the personal tax free allowance at the rate of £1 for every £2 earned. This means that for every £1 above £100,000, you are taxed at 40%, plus 1% NI, plus a further 20% for losing the tax free allowance. That adds up to 61%.

  • 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
    0

    Comment number 3155.

    "honestly ask yourself why you are poor." hmm iq 139 chk .. ethics never been to jail chk.. OH yah it must be the multiple sclerosis that stops me typing 80 words a minute like I used to and cost me my job in an international bank when i lost the abilty to use my right hand... nono it must be because i am lazy - silly me

  • rate this
    +1

    Comment number 3154.

    Make no mistake. Their backer, these laissez-faire capitalists will stop at nothing until they've eliminated your middle class, turned your government into a mouthpiece of large transnational corporations and destroyed your environment. Whatever makes the next quarters results look good to the market, with no thought for tomorrow.

    You will all be serfs in your country serving the elite few.

  • rate this
    +2

    Comment number 3153.

    Tried that already ... Sounds like "trickle-down economics" to me. Small group of the well-to-do, who don't want to pay their part in society, are trying to bring plutonomy to Britain. We have this across the pond and it's a disaster! It's so ingrained into both our political parties that with no hope of ever getting free from it.

  • rate this
    0

    Comment number 3152.

    3149.The_Gambler:

    You're a socialist at heart! Welcome Comrade!

  • rate this
    0

    Comment number 3151.

    3149.The_Gambler:

    "Employee owned cooperatives are a solution in my opinion"

    Socialism - is an economic system in which the means of production are either state owned or commonly owned and controlled cooperatively...

  • rate this
    -1

    Comment number 3150.

    3149.The_Gambler

    Socialism /ˈsoʊʃəlɪzəm/ is an economic system in which the means of production are either state owned or commonly owned and controlled cooperatively...

    Ouch thats gotta hurt!

  • rate this
    0

    Comment number 3149.

    3148. Duke

    I've never been stabbed, but I can predict I won't like it. We have many an example of socialism, and they always bring with them the free rider problem. It's a simple extrapolation to spread it over the economy as a whole.

    The answers to difficult questions are seldom found at either extreme. Employee owned cooperatives are a solution in my opinion.

  • rate this
    +2

    Comment number 3148.

    3114.
    The_Gambler
    2 Hours ago

    "I have no problem with demanding change. I have a problem with people who can't think past violence to do it. Socialism is as flawed as capitalism"

    How do you know? We have only ever had Capitalism in this country. When have we ever tried Socialism?

  • rate this
    -2

    Comment number 3147.

    3146. Kelly

    It's all well and good criticising the 'rich' for being 'greedy' by avoiding taxation, but the same principle applies to ISAs, which are held by many, many people.

    Of course, when you say the 'greedy' always wish for more, you sound quite bitter - is it not fair to say you'd like more? As would we all? People always want more.

  • rate this
    +2

    Comment number 3146.

    The more the greedy have the more they wish for.

    While this applies to greedy business people, it should not be forgotten that it also applies to whichever government is in power.

    Taxing the poor is not acceptable if they are already in poverty due to the cost of fuel, food, water, gas, electricity charges and COUNCIL TAX.

    Accountants are well paid to (legally) circumvent payment of taxes.

  • rate this
    0

    Comment number 3145.

    3141.TheTruthForeteller

    "Underqualified it is then, immigrants with fluent English are very rare."

    Suprisingly there are alot of immigrants that not only have Degrees but can speak excellent English.

  • 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.

 

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