The 50p tax rate must go!
Or should it? The Government has come under renewed pressure to scrap the highest rate of Income Tax, to help stimulate the economy, but is it the right thing to do?
The 50p rate of Income Tax, levied on every pound earned over £150,000, is holding back Britain and must be scrapped immediately.
That’s the view of a number of economists, anyway, who wrote to the Financial Times last week demanding George Osborne, the Chancellor of the Exchequer, drop the tax.
The move was met with fury by other groups though, who suggested that cutting tax for the top earners, when those at the lower end of the scale are struggling to get by, is outrageous.
Truth be told, I'm struggling to make up my mind about the top rate of tax; I can understand, and have sympathy for, both sides of the argument. So today I’m going to outline some of the points made both for and against the 50p rate, and ask you - our readers - to tell me and your fellow lovemoney.com users what you think.
Why the tax rate must go
Let’s start with the anti lobby, and the economists who wrote to the FT.
- Such a high rate of tax makes the UK less competitive internationally, and less attractive as a destination for both foreign investment and talented workers.
- As a result, this is holding Britain’s recovery back. We need to encourage entrepreneurship, to help stimulate growth with new businesses and job creation.
- Such a high rate of tax is essentially a tax on aspiration. Why would you want to become a high achiever, with such a high salary, if you then have to hand over a significant chunk to the taxman?
- The tax raises a relatively modest amount of money: around £2.7bn according to forecasts by the previous Chancellor, Alistair Darling.
Some fairly persuasive points then. What about those in favour of keeping the tax?
Why the tax rate must stay
- At a time when sharp cuts are being made to central services, it’s grossly unfair that the most well off in society are the ones who get a tax cut.
- The Government has said that those with the broadest shoulders should carry the load regarding taxes. Therefore, it’s only right that the seriously high earners – and only 310,000 people are affected by this tax rate – should pay more than the rest of us.
- The tax is likely to bring in a substantial amount of cash more than Darling suggested over the next five years, around £12.6bn more than if the tax rate had stayed at 40%.
Again, some appealing arguments in favour of keeping the controversial tax in place.
Personally, I’m still torn. Cutting taxes for the most well off in society would send a perverse message, but something clearly needs to be done to get the economy moving again. Cutting central spending is evidently not enough.
It appears that the Government is going to focus instead on raising the personal allowance – which would be a benefit to all of us, rich and poor alike – before doing anything to the top rate of tax, which strikes me as sensible. But the 50p tax debate is not going to go away.
So what would you do? And why?