The government has been advised to reduce the 50p tax rate by many leading economists whose professional opinion is that it is causing long term damage to the economy.
Twenty top economists have written a letter to the Financial Times recommending that the top tax rate should be abolished as soon as possible in order to increase economic growth. The letter is a response to the statements made by Chancellor George Osborne concerning the UK economic forecasts which have been lowered. He claimed that the top tax rate is not permanent by the government is in discussions with HMRC as to whether it is effective in bringing in more tax.
Unions have spoken out that to cut the 50p tax rate would be unfair as everyone is already feeling the effects of the spending cuts. However, the economists responsible for the letter have reasoned that the rate of tax for high earners is deterring them from remaining in the UK and discouraging foreign entrepreneurs from setting up business here. They claimed that if the tax rate was reduced, this would change and growth would be stimulated, which will be better for the economy in the long term.
The 50p tax rate was introduced to high earners by the labour government in 2010 with the aim of reducing the deficit as quickly as possible. It was forecast to make £1.3bn in 2010- 11, £3bn in 2011-12 and £2.7bn in 2012-13. Although Chancellor George Osborne has kept the tax rate so far, he has maintained that it is not a permanent measure and is in talks with HMRC about whether it is meeting the targets. He has expressed his awareness that it could cause high earners to move but is uncertain as to whether now is the time to cut it.
A treasury spokesman has responded to the letter saying that the government is well aware of the probable implications of the top tax rate whereby people may move. At this moment in time however, the priority is to reduce the deficit and like they have made clear in the past, people that make more money should carry more of the burden. HMRC have confirmed that approximately 308,000 people in the UK pay the top 50p tax rate.
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