Leading economists have called on the government to ditch the 50% tax rate for high earners.†
In a letter, signed by 20 economists, including DeAnne Julius, chairman of Chatham House and former member of the Monetary Policy Committee, and Bob Rowthorn, professor of economics and fellow of King’s College, University of Cambridge, written to the Financial Times, said that the 50% rate of income tax for those earning more than £150,000 a year is doing long-lasting damage to the UK economy.
The letter read: “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.
"This is particularly damaging when the UK needs to create new businesses in new industries and promote growth by small organisations, which can grow fast. It applies to just 1% of taxpayers, who already pay 24% of all income taxes.
“If a small portion of these highly mobile workers move elsewhere because of the 50% rate then it is clearly a self-defeating way for the treasury to try to raise money, and a reduction in tax avoidance would be more effective.
"It is often portrayed as a justified tax on the rich but the economic damage it causes means that it is against the interests even of ordinary workers who don not pay it.”
However, Brendan Barber, general secretary of the Trades Union Congress (TUC), said the 50% tax rate should be retained.
He said: “At a time when cuts are biting hard and ordinary people are suffering the biggest squeeze on their living standards in years, the last thing we need is a handout to the wealthiest in our society.
"But this call is not just monstrously unfair, it is the kind of bad economics that led to the economic crash. Running the country in the interests of hedge fund managers created the huge bubble that burst in 2008.
"What is most depressing is that in the US, France and Germany there are vocal lobbies of wealthy people making the case that they should pay more to help clear up the mess that caused by the crash. In the UK they simply want to get back to what they see as the good old days, with a chancellor quietly egging them on.”
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