The 50p tax row: What you need to know

 

Labour's pledge to restore the top tax rate for high earners to 50p has sparked criticism from business leaders and the Conservative party.

This is what you need to know:

What is the 50p tax rate?

Introduced in April 2010, it marked the first increase in the top tax rate for high earners in the UK for over 30 years. At the time, it was expected to yield around £2.5 billion.

...So?

At present income of up to £32,010 is taxed at the basic rate of 20 per cent.

A higher rate 40 per cent applies to income from £32,011 to £150,000.

If Labour succeeds in bringing the 50p tax rate back, high earners will have to pay a 50 per cent "additional rate" if they make more than £150,000 a year. At the moment they pay 45 per cent on income above that level.

Why now?

The shadow chancellor argues that this is not the right time to give the richest people in the country a tax cut because the "deficit is still high" and "real income is falling" for middle-class families. Labour tried to block the abolition of the 50p rate in 2012 but were defeated in the Commons.

How much would it raise?

That depends.

Ed Balls claims that restoring the 50p tax rate could raise £10 billion over three years. But the party has not put an official estimate on it.

George Osborne, who cut the 50p tax rate to 45p in his 2012 budget, thinks differently. The Chancellor argued that the 50p rate isn't justifiable because it "damages the economy and raises next to nothing".

A HM Revenue & Customs assessment published in March 2012, estimated that cutting the top rate to 45p would cost the economy £100m a year.

What do critics say?

A group of business leaders have been quick to criticise the proposal, claiming that it would hamper investment at a time when the UK needs it.

The heads of 24 companies, including Ocado chairman Sir Stuart Rose, West Ham United vice chairman Karren Brady and billionaire businessman Richard Caring, recently penned an open letter dismissing the restoration of the 50p tax rate as a  "backwards step" that will cost jobs and halt the recovery.

Mayor of London Boris Johnson urged the Chancellor to "open up some more blue water" between the Tories and Labour by cutting the top rate of tax to 40p from the current 45p.

And even Lord Myners, a former Labour City minister under Gordon Brown, questioned the move, arguing it is unclear how "predatory" taxation would help the economy.

Graphics: Jill Ornitz

 

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