Osborne Urged to Scrap 50% Tax Rate
Chancellor George Osborne has been urged by economists to scrap the 50% top tax rate as soon as he can in order to boost growth. A letter written by economists said that Britain will only enjoy long-term sustainable growth by returning to a competitive tax regime. The chancellor is also facing pressure from Tories and the Confederation of British Industry (CBI) to drop the temporary rate.
The 50% rate was introduced by the former Labour government in April last year. The tax has been applied to yearly taxable incomes of more than £150,000 and used to raise £2.7 billion per year. The tax increases imposed last year on the rich were designed to raise £7 billion per year, with the combination of limits to tax relief for contributions to pensions and the end of income tax personal allowance for people who make more than £100,000. These figures have been disputed by economists, who argue the 50% rate is more of a punishment for entrepreneurship and wealth.
However, government officials suggest the 50% rate will probably stay until 2013 at least. This is when a pay freeze, which is affecting millions of workers in the public sector, will be lifted. Deputy Prime Minister Nick Clegg is expected to insist that the top rate can only be dropped if other measures are imposed - a ‘mansion’ or property tax - in order to make sure the wealthy pay a fair share toward cutting the deficit.
Not all economists agree that the 50% tax rate should be scrapped. Institute for Fiscal Studies director Paul Johnson says that it’s too soon to give up on the top rate. The Treasury has taken a gamble on if the tax will raise money, and he doesn’t believe this is a stupid risk.