The Corner

Shock Horror! Britain’s 50% Income Tax Rate Is Being Avoided

The London Telegraph reports that the “50p tax rate,” by which individuals pay 50 percent of their income after the first £150,000 in individual income, is not raising revenues, despite the fact that “most other taxes produced higher revenues over the same period”:

The Treasury received £10.35 billion in income tax payments from those paying by self-assessment last month, a drop of £509 million compared with January 2011. Most other taxes produced higher revenues over the same period.

Senior sources said that the first official figures indicated that there had been “manoeuvring” by well-off Britons to avoid the new higher rate. The figures will add to pressure on the Coalition to drop the levy amid fears it is forcing entrepreneurs to relocate abroad.

The self-assessment returns from January, when most income tax is paid by the better-off, have been eagerly awaited by the Treasury and government ministers as they provide the first evidence of the success, or failure, of the 50p rate. It is the first year following the introduction of the 50p rate which had been expected to boost tax revenues from self-assessment by more than £1billion.

This isn’t greatly surprising. Despite the insistence from both the Labour government that introduced the rate and the new Conservative-Liberal coalition that it was necessary until Britain ”gets out of the crisis,” the move has had its critics. Last year, the Guardian noted that “a group of economists called for Britain’s . . . top rate of income tax to be scrapped ‘at the earliest opportunity’ to boost growth, amid fresh concerns that the UK is slipping towards a double-dip recession.” The group’s letter, written

by economists, who include Cambridge University academic Bob Rowthorn and former members of the Bank of England’s monetary policy committee DeAnne Julius and Sushil Wadhwani, claims the top rate introduced by the last Labour government, which applies to high earners on an income over £150,000, “punishes” entrepreneurship.

They called for a return to an “internationally competitive tax regime” to stimulate the faltering economy.

“We are concerned that Britain’s 50p income tax rate is doing lasting damage to the UK economy,” they wrote. “It gives the UK one of the highest personal tax regimes in the industrialised world, making it less competitive internationally and making us less attractive as a destination for both foreign investment and talented workers.

“It punishes wealth creation by imposing on entrepreneurs and business people a marginal tax rate in excess of 50% once national insurance contributions are added in. This is particularly damaging when the UK needs to create new businesses in new industries.

The economists, who said the rate applies to just 1% of people who pay 24% of all income taxes, added in the letter: “We call on the government to drop the 50p tax at the earliest opportunity as part of a package of measures to stimulate growth.

“Only by returning to an internationally competitive tax regime will Britain enjoy long-term sustainable economic growth.”

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