Chancellor George Osborne has been asked to scrap the 50p tax rate(Image: Dave Thomson - PA Archive)

The 50p rate of income tax for high earners must be scrapped as it is causing lasting damage to the UK economy, say 20 leading economists.

They have written a letter to Chancellor George Osborne calling for the top rate, levied on those earning over £150,000, to be scrapped "at the earliest possible opportunity".

In the letter, published today in the Financial Times newspaper, the group stressed it was deterring entrepreneurs and making the nation less competitive internationally.

"It punishes wealth creation by imposing on entrepreneurs and business people a marginal tax rate in excess of 50% once national insurance contributions are added in," they wrote. "This is particularly damaging when the UK needs to create new businesses in new industries.

"Only by returning to an internationally competitive tax regime will Britain enjoy long-term sustainable economic growth."

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A strong argument to scrap it?
That UK growth is stalling is unquestionable. Growth predictions for this year and next have been repeatedly cut as the economy remains stubbornly unresponsive to any form of stimulus.

Remember, interest rates have been at a record low for two and a half years now, not to mention the £200 billion pumped into the economy through the Bank of England's quantitative easing programme.

The result? Growth of 0.2% in the second quarter, down from 0.5% in Q1. There is a general consensus that more needs to be done to stimulate growth - the calls for more quantitative easing grow louder each month - and, if the 50p rate is seen as an impediment to growth, the case for scrapping it seems clear.

Even Osborne himself is no fan of the tax, introduced by his Labour predecessor Alistair Darling. Wary of driving high earners abroad, he's been at pains to stress it would always be a temporary measure, adding that any move to make it permanent would hurt the economy.

So will the 50p tax will be history in no time? Probably not. There are a number of factors that could stay the chancellor's hand, for now at least.

More facts are needed
The tax was introduced as one of the final acts of the Labour government before the coalition took power, designed as a quick-fire way to boost public coffers and tackle the gaping deficit.

So how much money is it generating? Well that is the million-, or perhaps billion-pound question. If it's a significant sum, the chancellor may struggle to make a case for scrapping it, given the government's dire finances. But if it transpires that the tax has merely sent high earners, and their considerable tax payments, to greener pastures abroad, that's a different story entirely.

Osborne has asked HMRC to find the answer to that very question. Problem is, that task won't be completed until after the deadline for this tax year's self-assessment forms in January 2012. So there's almost certainly no question of scrapping it before then.

Also, this might not be the tax to cut if it's growth the chancellor desperately wants. Osborne's Labour counterpart, Ed Balls, has claimed that a far better way of boosting the economy would be by cutting the VAT rate from its current 20%.

The argument here is that it gets us spending again.

Tax relief: are you claiming all you can?

A political hot potato
Yet another, potentially decisive, factor has nothing to do with money at all. While many of Osborne's Tory allies would be only too happy to see the tax scrapped, the other side of the coalition don't tend to share that view.

Just last month, Deputy Prime Minister Nick Clegg said the coalition's focus was on helping those on low and middle incomes rather than a small minority at the very top.

And then there's public opinion to consider. Remember that this whole financial mess was triggered by the banking sector, whose top employees were, and in many cases still are, taking home huge salaries.

Many still feel that it is only right that the rich must play their part in cleaning up the mess that remains. Osborne may feel that scrapping a tax on the highest earners is a political hot potato he would rather not deal with anytime soon.

Highlighting how the 50p debate is much more than just a financial one, Alistair Darling said in a BBC interview that it would be "grossly unfair" to scrap it before some form of economic normality had been restored.

So clearly the question isn't around if the tax should be scrapped, but when.

But while the argument for scrapping it as soon as possible may be convincing, it's by no means clear cut.

Which side of the debate do you fall on? Share your views on the 50p tax rate below.

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Related links
Tax relief: are you claiming all you can?
MSN Money's tax centre