50p Tax To Undermine UK Economic Growth
Earlier this year the UK Centre for Policy Studies published ‘What’s Wrong with 50p’ by Jill Kirby and Iain Griffiths.
The report showed how the new top rate of income tax will meet none of Adam Smith’s criteria for good taxation – fairness, simplicity, certainty and efficiency – and will undermine UK competitiveness and economic growth.
CPS Board member and Spectator Editor Fraser Nelson is also a persistent critic of the new rate. Read more here.
The CPS has now started a regular series of e-bulletins monitoring media coverage of, and the political response to, the 50p income tax rate. To subscribe to the bulletin please email bimal@cps.org.uk
In a report examining the impact of the 50p tax rate published by the Centre for Policy Studies, Jill Kirby and Iain Griffiths show that the proposed new 50p income tax rate meets none of Adam Smith’s criteria for good taxation – fairness, simplicity, certainty and efficiency – and will undermine UK competitiveness at a crucial time.
- Not fair. The withdrawal of some personal allowances will lead to widely variable marginal rates, reaching 61.5% for those earning between £100,000 and £112,000, while those earning more will face a lower rate.
- Not simple. As a consequence of the Finance Bill 2009, there will be 16 different personal tax rates.
- No certainty. The departure from a 30 year trend towards flatter taxation, accompanied by the Chancellor’s hints of worse to come, will result in uncertainty about future taxation.
- Not efficient. Above all, they find, the new rate is unlikely to raise revenue. Aggregating the microeconomic impact of the new rate and its associated changes shows that both participation and wealth effects will result in much lower revenue than the Chancellor claims. And even if the Treasury’s optimistic assumptions are accepted, the estimated revenue of £2.4 billion is nugatory in comparison with current government borrowing requirements of £175 billion.
The new rate will be the highest in the G8 and will therefore put the UK at the bottom of the international competitiveness league for high earners. The richest and most mobile members of the British population will have the greatest incentives to move abroad. The negative impact of the 50p rate will thus far outweigh its ability to reduce the national debt. Moreover, it threatens the UK’s ability to rebuild enterprise and restore its battered economy. It should therefore be abolished.
Jill Kirby concludes that:
“The Chancellor’s Budget announcement of a 50p tax rate was a political manoeuvre to wrong foot the Conservatives, whose refusal to take the bait means that the economic and political case against 50p has not been made as strongly as it should have been. In his Mansion House speech last week, the Chancellor hinted that he may take further steps to penalise the better off. But it is time to recognise the long term damage that this political manoeuvring will do to the British economy – and abolish it as quickly as possible.”
Topics: 50 percent tax rate, 50p tax, Adam Smith, Britain, economic development, economic growth, Economy, England, Governance, government, levy, tax, tax hike, tax rises, UK, UK politics, United Kingdom
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