Labour 50p tax plan 'very bad' for economy, says Cameron

Skyline of London's financial district The government cut the top rate of tax from 50p to 45p last April

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Labour's plan to raise the top rate of income tax to 50p is "politically convenient" but "very bad" for the economy, David Cameron has said.

The prime minister told a business conference in London that the move would "cost jobs and investment".

He said the strong reaction from business to the plans illustrated how damaging they could be.

But Labour leader Ed Miliband said it would not stop firms investing and voters now had a "clear choice" on tax.

Senior Labour figures have been defending the pledge to raise the top rate on income tax on salaries above £150,000 from 45p to 50p if they win the next election in 2015.

The last Labour government raised the top rate of tax from 40p to 50p in 2010 but the coalition lowered it to 45p last April.

'Fair and reasonable'

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What is more interesting about the planned tax rise is what it says about battle lines in politics, and the parties' attitudes to high earners and businesses.”

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Business has attacked Labour's pledge, while former trade minister Lord Jones suggested it showed the party was reverting to "tribalism" and putting politics ahead of sound economics.

But Mr Miliband said it was "utterly fair and reasonable" to reverse the coalition's move, given that the majority of taxpayers had suffered an "unprecedented" squeeze on their living standards.

"It will help get the deficit down and it reflects my principle and the principle of the British people that those with the broadest shoulders should bear the greatest burden," he said.

Reacting to calls from the Mayor of London Boris Johnson for the top rate to be reduced to 40p, Mr Miliband said there was a clear difference on tax between the two largest parties.

"Labour has shown very clearly we want fairness in the tax system and we have seen the prime minister offering a different view... so we have set out a very clear choice and the British people know what that choice is."

Shadow Business Secretary Chuka Umunna earlier the told the Federation of Small Businesses annual conference that the move was not "ideological" but would meet Labour's pledge to deliver a budget surplus by 2020.

'Whinging'

Speaking at the same event, Mr Cameron said reinstating 50p was "anti-business, anti-investment and anti-growth".

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There may be some adverse consequences economically but the evidence is they are fairly small”

End Quote John Mills Businessman and Labour donor

While the government had been right to cut the top rate of tax last year even though it was "politically difficult", Labour was now doing the reverse, he claimed.

"I want rich people to pay more taxes," he added. "The way to get rich people to pay more taxes is to get the economy moving, to get them investing, to get them spending, to get them buying, to get them employing."

More than 20 company bosses have written to the Daily Telegraph to condemn the plans but businessman and Labour donor John Mills said the 50p rate had not led to an exodus of entrepreneurs in the past.

He told BBC Radio 4's World at One programme that it may have "some adverse consequences economically but the evidence is they are fairly small".

But Plaid Cymru said Labour were "running scared" of the City and the 50p tax should be made permanent.

The Institute for Fiscal Studies has said the 50p rate would raise less than 1% of what is needed to eliminate the deficit - with the vast bulk likely come from further cuts to public spending.

The BBC's economics editor Robert Peston said the pledge showed how far Labour had moved to the left on tax since Tony Blair was its leader.

He said a commitment not to raise income tax had been a bedrock of New Labour but Ed Miliband believed the banking crisis had changed attitudes and had shifted Labour's position on a range of business issues.

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