Today, 20 economists wrote to the FT to explain why the UK should scrap the 50p tax rate as soon as possible. This position, which has been advocated by the CPS since the rate’s inception, finally appears to gaining traction.
To the wider public, being squeezed by the burgeoning cost of living and low consumer confidence, scrapping the 50p rate will at first sight look like an odd move. But it should not take a politician of great skill to be able to explain that if a tax rate isn’t making us money, yet is actively harming growth prospects, then it should be scrapped.
There are 308,000 who earn £150,000 or more, and as such are eligible to pay the 50p rate, which represents around 1 per cent of the total workforce. Of these, around 14,000 earn over £1 million per year.
The average amount of tax paid by each of these individuals is £1.014 million. If 1,000 of these 14,000 people were to leave the UK as a result of George Osborne deciding to maintain 50p (when in the previous Budget he signaled that he would scrap it) then the UK economy would have to generate around 180,000 extra jobs with salaries of £30-50k in order to maintain income tax revenue. Quite simply, it’s in the interests of all of us for the wealthy to remain here, notwithstanding the fact that those more likely to generate jobs are the very people who might decide to leave.
I suspect that for the time being George Osborne will wait to see the results of the HMRC and Treasury study into the revenue effects of the tax. But it’s important that this examines not just the implications for income tax revenues from the high income employees, but also potential loss of VAT, income tax revenues and NICs from wealthy individuals who might otherwise have generated jobs by locating here, as well as through their own spending. As I’ve examined before, given these secondary effects and increasing international mobility, I am convinced that the rate is actually losing the Treasury money. And given the signatories of today’s letter, it seems many academics, even those who cannot be described as ‘conservatives’, are thinking the same.