The announcement at the weekend by shadow Chancellor Ed Balls that a future Labour government intends to re-introduce a 50p top rate of income tax has been strongly criticised by the business community say Harris & Co accountants Northampton.
In a speech on fiscal policy made to the Fabian Society, Balls said Labour would reverse the coalition government’s decision to reduce the income tax rate for those earning above £150,000, saying ‘those with the broadest shoulders’ should bear a ‘fairer share of the burden’. He said the move would reverse an ‘unfair tax cut for the richest one per cent of the people in the country’ and cut the current deficit ‘in a fair way’.
Katja Hall, CBI Chief Policy Director, said:
‘Getting the UK"s deficit and national debt down is essential to maintaining the country"s credibility with the markets and for the long-term health of our economy. We"ve been clear that this must go hand in hand with pro-business, pro-growth policies. We don"t believe that introducing a 50p income tax rate is the right way to raise the money because this puts talented people off coming to the UK to invest and create jobs.’
In a letter to the Daily Telegraph published today the heads of 24 companies also warned that the 50p tax rate would put the economic recovery at risk and lead to the loss of jobs by having ‘the effect of discouraging business investment in the UK.’ Signatories included Ocado chairman Sir Stuart Rose, West Ham United vice chairman Karren Brady, billionaire businessman Richard Caring and Kingfisher chief executive Sir Ian Cheshire.
In his speech, Balls made reference to recent updated figures from HMRC showing that people earning over £150,000 paid almost £10bn more in tax in the three years when the 50p top rate introduced by Labour was in place, than was estimated when the government conducted its assessment of the tax rate in 2012.
However, the Institute of Economic Affairs (IEA) said those earning more than £150,000 already paid close to 30% of all income tax and warned that the proposed 50p rate could ‘erode’ the country’s tax base.
Balls said Labour also wanted to introduce a lower 10p starting rate of tax to help make work pay and cut taxes for 24m working people on middle and lower incomes.
Stephen Ibbotson, ICAEW director of business, said:
‘The proposed reintroduction of the 50p tax rate and the “national tax advantage scheme” shows that Labour recognises the need for radical tax reform. It should start with making the system simpler to make it fairer for all. The big question is how those two potentially major tax changes support Labour’s commitment to champion enterprise and entrepreneurs.’
Following the introduction of the 50p tax rate under the previous Labour government in April 2010, Treasury analysis in 2012 found that it raised just £1bn a year — a third of the amount expected. At the time HMRC predicted that reducing the levy by 5p would only cost the Exchequer about £100m.