CBI Slams UK Tax Policy

by Robert Lee, Tax-News.com, London

28 May 2009

The Confederation of British Industry (CBI) has launched a scathing attack against the government’s tax policy, describing the new 50% top rate of income tax as “economic vandalism.”

CBI President Martin Broughton said in a speech at the CBI’s annual dinner that the government’s introduction of a new 50p income tax rate was an attempt to “divert media attention” away from its failure to address the deficit in a way that “gives confidence to buyers of our debt.”

Broughton added that “tearing up the manifesto commitment to the country’s entrepreneurial class – the major job creators – was nothing short of economic vandalism. What’s more – the tax take is likely to be minimal.”

“Winston Churchill had an apt view on this when he said: ‘I contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle,’” Broughton quipped.

Chancellor Alistair Darling announced the new 50% tax rate for those earning GBP150,000 per year or more in the 2009 budget speech last month. It is set to come into force in April 2010. The measure is designed to raise an additional GBP2.4bn in revenues by 2012/13. However, the Treasury’s own pre-budget model is reported to suggest that as many as two-thirds of the taxpayers falling into the new tax bracket will take evasive action.

A number of avenues will be available to higher rate taxpayers to enable them to reduce the impact of the budget proposal. One example would be to convert more income into capital gains, which is taxed at 18%, or corporate income, which is taxed at 21% or 28% depending on the size of the business. Many entrepreneurs and business owners are also expected to leave the country.

Also attending the CBI annual dinner was Prime Minister Gordon Brown, who launched into a now-familiar defence of the 50% tax rate.

“I do not like doing it as much as you will not like the measure,” Brown said. “But I say to you: if we are to restore our public finances, coming through what is a difficult recession where we have had to wipe out billions of pounds as a result of banking failures, where we’ve got a massive loss in tax revenues as a result of the failures in the financial sector as well the loss of revenues in the corporate sector, we have a duty to act.”

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