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UK Continues To Debate 50% Tax

by Robert Lee, Tax-News.com, London

13 September 2011


The UK's politicians and economists continue to be at loggerheads over the merits of the top rate of tax, with an ex-Chancellor, a Liberal Democrat minister and a leading businessman the latest to add their conflicting views to the debate.

This most recent raft of comments came after the Financial Times published a letter from 20 of the UK's highest-profile economists urging the Chancellor to scrap the 50% rate of tax levied on all incomes over GBP150,000 "at the earliest opportunity as part of a package of measures to stimulate growth.” Slamming the alleged damage the rate is causing, the letter stressed that it has made the UK "less competitive internationally, and less attractive as a destination for both foreign investment and talented workers".

When questioned on the letter by the BBC's HARDTalk programme, Stuart Rose, the former boss of Marks and Spencer, said the rate "shouldn't even be discussed". According to Rose, reducing it is "absolutely a no-no", qualifying his stance by asking how he would be able to explain to his secretary that he pays less tax than her, while her tax rate fails to fall. He called for the issue to remain on the back-burner.

Rose even went so far as to state that he is "very happy to pay an extra bit of tax while the UK is in difficulty". He added that while the penal rates of tax seen in the 1970s and 80s were wrong, if in the short term a case was made for him to pay more than 50% tax to help UK Plc, "I personally would be prepared to pay more".

The 50% rate has advocates in the cabinet too, with the government's rift over the issue frequently exposed by comments made by ministers on opposing sides of the debate. While the Conservative Chancellor has made clear his opinion that the rate is "temporary", it is well known that leading Liberal Democrats intend to see the rate remain, and even impose a "mansion tax" on wealthy home owners, as part of a quid pro quo arrangement were the rate scrapped.

The latest of these ministers to voice their stance is Chris Huhne, Energy and Climate Change Secretary, who, in an interview with Prospect Magazine, said any proposals to slash the rate simply would not receive the required votes in parliament. He also appeared to attack his cabinet colleagues, saying that "if the cut in the top rate of tax is just a way of helping the Conservatives' friends in the City to put their feet up, forget it".

Instead, Huhne believes the priority for tax cuts ought to be "lifting the hardworking low paid out of income tax altogether". He said that there must be "a cast iron economic justification" to lower the top rate. Huhne also referred to the plausibility of a mansion tax, arguing that "there is only one way of ensuring that a cut in the top rate of tax boosts work effort, and that's by offsetting the windfall gain in income by cutting high earners' tax reliefs or some other means such as mansion tax".

Among those on the other side of the divide are key ex-Chancellors, such as Norman Lamont and Nigel Lawson, the latter of whom recently delivered a damning assessment of the rate as "very dangerous, very unwise, very foolish". Lawson told Radio 4's The Week In Westminster that cutting the rate "would be especially beneficial to the economy", with minimal impact on the exchequer. Echoing the Financial Times letter, Lawson said that the rate places the UK "at a disadvantage with all our major competitors, because they all have top rates which are less than ours".

The rate is currently under Treasury review, with ministers awaiting a report, expected early next year, on the benefits and costs to the exchequer of the tax.

TAGS: individuals | tax | investment | economics | business | fiscal policy | budget | United Kingdom | tax thresholds | legislation | tax rates | tax reform | individual income tax

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