Should the 50p tax rate be scrapped?
Business leaders want it abolished as it is stifling economic growth, but there are several arguments for keeping it – for now at least.
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."
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.
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.
50p tax rate is at best misleading. Most of the people earning over 150k pay way less than 50%, if you take into account dividends, bonuses, extra pension contibutions and every other perk under the sun, also remember that nat insurance stops at 40k so that's 12% of their earnings they are saving compared to the rest of us. Scrap the upper national insurance limit.
Entrepreneurs are by their very existence, on the whole,company directors who will with a good accountant pay themselves a lower wage and attract more dividends therefore paying less tax; so can anyone explain how the 50p rate will deter them!!!!.
I think they are relying on our general stupidity to just believe them.
The right wing press will of course be trying to persuade us all its in the interests of the country, but before you believe them, ask yourselves this; how much is the editor (The one who decides what is printed) earning?
why do the tax breaks get given to the high earners? how's about leaving their tax as is and giving a break to low earners so they have a bit of expendable income.
I for one work 50 hours a week and the only thing i have to look forward to is paying increasing bills not buying a holiday home on the coast or the latest sports car with my big banker bonus and as this article has stated we had to bail the banks out so why reward them for making a mess of the already fragile economy.
Do`nt you just wan t to shed two tear drops out of one eye for those `poor` high earners. If they sat back for a moment, and thought about how far a £2 per week pay rise for the common workers goes, when they are giving themselves a two grand a week pay rise. Sorry, no sympathy here.
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.
The people of Libya got it right. Rebel and kick out the people who are robbing the workers to fund the rich.
The government is funded and controlled by the money men and women. No wonder they are forever looking at ways to keep the richer classes happy and bugger the rest.
Immigration means a constant influx of slave labourers and yet another way to divide and conquer .
Do they really think that all the high earners will leave the country? There are lots of high paid jobs in the government sector . Huge sums of money are paid to the CEO's
of nearly every council, health authority , Fire , Police , customs , with correspondently huge pensions . Yet if cuts are maid they are always made in the front line staff.
How can we ever get an end to the recession whilst the better off keep lining their own pockets ?
The higher Tax rates in other countries range from 9% to 59%. In Europe it seems to cover a range 30% to 59%. However if our higher earners want a real bargain go to Rumania top tax 9%.
Of course all this is irrelevant if you do not look at the other things. Such as health care, pensions and social benefits.
Tax rates in the USA are less than the UK but a lot of the difference is taken up with health insurance. Higher earners are also expected to work all hours and holidays are shorter.
Most of the lower tax areas do not have the same level of salary as Europe or USA.
It is a fact that the Financial Industry caused the current problems, therefore if they are having to pay a little extra so be it.
If the UK wants a manufacturing industry again start buying British.
Note. he is being urged to drop this rate of tax by the very people that are on the biggest tax
fiddles, what a surprise.
All tax loopholes should be closed & every body ,that includes the rich should pay tax on everything from share options to corporate jollies in the same manner as a PAYE person.
The higher rates of Tax should also be linked to the TRUE unemployment figures not the fiddled figures we get from our lying government. On this basis the higher earners should be paying at least 90p in the £ until the benefit figures are greatly reduced.
Unemployment is yet another disgusting tool the rich use to drive the poorer people into poverty.
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A new study suggests a typical financial emergency costs around £1,200 - would you be able to raise that kind of money within a month?
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- Yes - from my savings
- Yes - I could put it on credit
- Yes - I could borrow from family or friends
- No - raising that kind of money in a month would be impossible