50p tax rate a 'temporary measure'
Wednesday 07 September 2011
Downing Street has reiterated that the 50p income tax rate on top-earners is a "temporary measure", as a group of leading economists called on Chancellor George Osborne to scrap it at the earliest opportunity.
But Government figures poured cold water on prospects of swift action on the 50p rate, with Communities Secretary Eric Pickles - a leading Cabinet advocate of abolition - acknowledging that it can be dropped only "when the time is right".
In a letter to The Financial Times, 20 high-profile business experts told the Chancellor the UK needed to return to an "internationally competitive tax regime" to stimulate the stuttering economy.
The letter sparked claims from Labour and the TUC that the Government was contemplating a massive handout to the wealthiest in society at a time when ordinary taxpayers were struggling from the impact of cuts.
Signed by economists including former members of the Bank of England's Monetary Policy Committee DeAnne Julius and Sushil Wadhwani, the letter warned that the levy on earnings over £150,000, introduced by the previous Labour chancellor Alistair Darling, "punishes" entrepreneurship and could do "lasting damage" to the economy.
The top rate, predicted to raise around £2.7 billion, was a "self-defeating" way for the Treasury to raise cash as it would drive investment and high-earning individuals abroad, they said.
Their intervention came as Mr Osborne signalled that growth forecasts were set to be downgraded in his autumn statement on November 29, following a slew of poor data.
In a speech in the City last night, Mr Osborne said he had had to revise down his short-term expectations for growth, but insisted that the Government would stick to its deficit reduction plan, which he described as "the rock of stability upon which any sustainable recovery depends".
New figures from the National Institute of Economic and Social Research has added to the gloom, estimating GDP growth for the three months to August at just 0.2%, compared with 0.6% in the previous quarter.
Mr Osborne has ordered HM Revenue and Customs to carry out a review of how much money the 50p rate is actually raising, though the results of this are not expected until the spring.
Mr Cameron's official spokesman confirmed that the Government regarded the rate as "temporary" but stated that official policy - as set out in last year's Coalition Agreement - was that lifting the income tax threshold to £10,000 should take priority over other tax cuts.
The spokesman told reporters: "As the Chancellor said at the time of the Budget, the 50p rate is a temporary measure.
"He has asked Revenue and Customs to conduct some analysis on the amount of money being raised by the 50p rate. That analysis is still ongoing."
Mr Pickles told BBC Radio 4's World at One: "There is a strong case to say this isn't actually contributing very much and on balance is probably doing more damage than good. When the Chancellor judges the time is right to do so, then we should get rid of it."
But Labour said that the priority for tax cuts should be reversing the hike in VAT to 20%.
"Millions of struggling families and pensioners on middle and low incomes will wonder why the only tax rise or spending cut George Osborne is willing to reconsider is the top rate of tax for the very richest," said shadow chancellor Ed Balls.
"If we really are all in this together then the right priority to boost the stalled economy now should be temporarily reversing the VAT rise, which is costing families with children around £450 a year."
Mr Cameron taunted Labour in the Commons over Mr Darling's confirmation, in memoirs published today, that he advocated a 20% VAT rate ahead of the 2010 election and believed that Gordon Brown's refusal left the party without a "credible" economic policy.
Mr Cameron - who brought a copy of Mr Darling's book into the chamber for Prime Minister's Questions - said it was "interesting" that Labour leader Ed Miliband did not dare ask him about the economy.
And Conservative chairman Baroness Warsi said: "By opposing the VAT rise that Darling knew was necessary, Ed Balls and Ed Miliband show they have not learnt the lessons of the past and have no credibility for the future."
Conservative backbencher, John Redwood, added his voice to calls for the abolition of the 50p rate, which he said would actually lead to an increase in the overall tax take from high-earners.
Mr Redwood told the BBC News Channel: "I think the sooner he scraps it, the sooner he's got another building block in what he needs, which is a faster and better growth strategy.
"It's also very important for getting the deficit down, because unless we get more money out of the rich we are not going to get the deficit down."
TUC general secretary Brendan Barber said: "At a time when cuts are biting hard and ordinary people are suffering the biggest squeeze on their living standards in years, the last thing we need is a handout to the wealthiest in our society.
"Running the country in the interests of hedge fund managers created the huge bubble that burst in 2008."
Emma Boon, campaign director of the TaxPayers' Alliance pressure group, said Labour was right to call for a cut in VAT, but wrong to paint the issue as an "either-or situation".
"The Government should be reversing the VAT hike and scrapping the 50p rate to ensure all taxpayers are better off and the economy isn't damaged by a political gimmick," she said.
A Treasury spokesman said: "The Chancellor said at Budget that the 50p rate is a temporary measure and he has asked HMRC to conduct an analysis of the revenue raised by the rate.
"The Government is committed to a competitive tax system, but in reducing the deficit, we have always been clear that those with the broadest shoulders should carry the greatest burden."
Chief Secretary to the Treasury Danny Alexander rejected calls for the 50p income tax rate to be scrapped, arguing that the focus should instead be on help for people at the bottom end of the earnings scale.
In an interview with the New Statesman, the Liberal Democrat Cabinet Minister said: "At a time when the whole country is facing serious financial challenges, the priority needs to be people on low and middle incomes.
"I don't see why we shouldn't be trying to get to a situation where people in a full-time job on the minimum wage are paying no income tax at all."
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