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UK Opposition Pledges To Restore Top Income Tax Rate

By Amanda Banks,, London

28 January 2014

The UK Labor Party's Shadow Chancellor has pledged to reverse a GBP0.05 cut in the top rate of income tax for those earning more than GBP150,000, prompting criticism from a group of business leaders that the move would discourage business investment in the UK.

A GBP0.50 "additional rate" band was introduced by the previous Labor Government in 2010, and reduced to GBP0.45 by the current Conservative-led coalition last April. In his 2012 budget speech, Chancellor George Osborne argued that the GBP0.50 rate had raised just GBP100m a year, which he said was "at most a fraction of what we were told," and that even this amount may have been cancelled out by the loss of other revenues.

Ed Balls made the announcement at the Fabian Society's New Year Conference at the weekend. He described the GBP0.45 rate as "a huge tax cut" for "the richest people in our country," and argued that re-introducing the higher rate would be a fairer way to decrease the deficit at a time when "incomes are falling and the the taxes are rising" for "ordinary families." Balls also took issue with the 2012 assessment, claiming in fact GBP10bn more had been raised during the three years the GBP0.50 rate was in place than the assessment had indicated.

In response to the announcement, a group of 24 business leaders wrote an open letter describing the plan as "a backwards step which would put the economic recovery at risk and would very quickly lead to the loss of jobs in Britain," while Lord Myners, who was City Minister in the last Labor Government, accused Balls of promoting "the politics of envy" and the values of "old Labor."

However, Balls told the media that that he was "pro-business" and that the higher rate would only remain in place until the budget deficit had been cleared in 2020. He also ruled out any further increase.

The next general election in the UK will take place on May 7, 2015.

TAGS: tax | economics | United Kingdom | individual income tax

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