George Osborne should drop the 50p top rate of income tax “at the earliest opportunity” to boost growth, according to 20 high-profile economists.
“Only by returning to an internationally competitive tax regime will Britain enjoy long-term sustainable economic growth,” the economists write in a letter in Wednesday’s Financial Times.
The signatories include many figures not usually associated with conservative causes, such as Bob Rowthorn of Cambridge University, and two former members of the Bank of England’s policy committee, DeAnne Julius and Sushil Wadhwani.
George Osborne, chancellor of the exchequer, is already facing pressure from the Tory right and CBI employers’ organisation to scrap the “temporary” top tax rate.
The Treasury believed that the 50p rate, introduced by the former Labour government in April 2010 on annual taxable incomes above $150,000, would eventually raise 2.7 billion pounds ($4.3 billion) a year. Combined with restrictions on income tax relief for pension contributions and the abolition of the income tax personal allowance for people with annual incomes above 100,000 pounds, last year’s tax increases on the rich were designed to raise 7 billion pounds per annum.
The economists dispute these estimates, arguing the 50p rate “punishes” wealth and entrepreneurship. “It is often portrayed as a justified tax on the rich, but the economic damage it causes means that it is against the interests even of ordinary workers who don’t pay it,” they write.
Last month Mr Osborne said “there’s not much point in having taxes that are economically inefficient”. He added that the rate was uncompetitive internationally and targeted wealthy people who were already paying taxes on their capital gains.
Government officials, however, have suggested that the top rate is unlikely to be scrapped until 2013 at the earliest, when a pay freeze affecting millions of public sector workers is due to be lifted.
Nick Clegg, Liberal Democrat leader, will insist the 50p top rate can only be scrapped if other measures, such as a property or “mansion” tax, are introduced to ensure the wealthy pay their “fair share” towards cutting the deficit. The Lib Dems will also insist that the 50p rate’s abolition is accompanied by accelerated moves to raise the annual tax threshold to 10,000 pounds.
Other leading economists are more sceptical. Paul Johnson, director of the Institute for Fiscal Studies and not a signatory of the letter, said it was much too early to give up on the 50p rate: “The Treasury has been taking a punt on whether [the 50p rate] will raise money. It is taking a risk, but it is not a stupid punt.”