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Debate On UK's Top Tax Rate Rumbles On

by Robert Lee,, London

16 August 2011

The UK's top rate of personal income tax will not be a permanent fixture, according to the Chancellor, who has said that the country needs its taxes to be competitive.

George Osborne made his comments on the BBC's Today Programme on August 13 when pressed by presenter James Naughtie on his plans to stimulate the economy. Osborne defended the government's plans for deficit reduction, arguing that it is sorting out deep economic problems and trying to create a more broadly-based, competitive economy. He said tax revenues and spending programmes are broadly on track, and that there should be no doubt as to the UK's commitment to dealing with its debts and maintaining fiscal responsibility.

When questioned still further on whether lowering taxes could contribute to economic stimulation, Osborne responded by stating that several methods are being used to this end. He said that the UK benefits from low interest rates, providing a monetary stimulus, and that the government is spending money in effective and economically efficient ways. In addition, it is committed to reducing certain taxes, with the aim of having the lowest business tax rates of any Western economy.

Turning to the 50% tax levied on incomes over GBP150,000 (USD244,845), Osborne reiterated his belief that he does not see it as a lasting rate for the country, given its "very uncompetitive" nature and the fact that people can simply move away to avoid it. He added that he has asked HM Revenue and Customs to assess what the revenues generated by the tax actually are, but stressed that the data will not be available until the end of the financial year, when self-assessment forms are returned. Nonetheless, Osborne drove home the point that taxes must be economically efficient.

In spite of his stance on the top rate of income tax, Osborne made it clear that the UK's wealthiest are not immune from the tax system. He reminded listeners that the government has increased capital gains tax, introduced a permanent bank tax and is carrying out a "ruthless clampdown" on tax evasion.

However, Osborne's comments have not made the issue of taxing the wealthy disappear. Osborne is under considerable pressure from Liberal Democrat coalition colleagues to replace the 50% rate with a 'mansion tax', possibly on all homes costing more than GBP1m.

TAGS: individuals | capital gains tax (CGT) | tax | investment | economics | business | real-estate investment | fiscal policy | real-estate | corporation tax | United Kingdom | tax thresholds | tax rates | tax reform | individual income tax

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