Leading article: Tax wealth, not wealth creation

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The Independent Online

It is easy to dismiss as self-interest the claims from more than 500 business people that the 50p tax rate is damaging the economy. It is also missing the point.

Self-interested or not, the arguments hold. The marginal rate – which applies to earnings above £150,000 – was only ever to be temporary. And what made sense when Alistair Darling introduced it in 2009, with the economy set for recovery, is less prudent now, with growth proving so hard to find.

Neither is the 50p rate of much benefit to the Exchequer. Fewer than 350,000 people fall into the top band, generating less than two per cent of the total income tax take (and only that much assuming no one hires a clever accountant).

Meanwhile, the 50p rate not only discourages individual high-earners from investing in or expanding their businesses; even worse, it sends out the broad message that, in Britain, entrepreneurialism is a cow to be milked rather than nurtured. It is a price our stagnating economy cannot afford to pay.

Unsurprisingly, both David Cameron and George Osborne favour abolition. The problem is the politics. For a Tory Chancellor, pushing through unprecedented spending cuts against a backdrop of rising living costs and widespread hardship, cutting the top tax rate is tricky indeed. Tricky, but not impossible.

This newspaper has repeatedly backed Liberal Democrat calls for a mansion tax. We also believe that top-rate tax relief on pension contributions should be abolished; and that the income tax threshold should be brought up to £10,000 immediately, rather than waiting until 2015. Scrapping the 50p rate alongside such policies would not only make better economic sense – tilting the tax system away from heavy-handed redistribution and in favour of dynamism and wealth creation. It would also spike the guns of political opponents.

Business leaders are warning Mr Osborne against putting "populist politics" before economics. They are right. By scrapping the 50p rate as part of a wider, more progressive package of reforms, he would both boost the economy and prove he is one step ahead.