Adam Smith Institute

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Labour's 50p tax rate 'could cost the country £350bn', Osborne warned

Written by Jason Groves

Chancellor George Osborne was under fresh pressure to scrap Labour’s 50p tax rate last night after a report warned it could deprive the Government of £350billion of tax revenue in a decade.

The ‘politically-motivated’ tax rate on earnings over £150,000 would reduce economic activity by 19 per cent over the same period, the study found.

The Adam Smith Institute report warned this could cost the Government billions in lost tax revenue. It also called for the main higher-rate income tax level to be cut from 40 per cent to 35 per cent, to make Britain more competitive. Britain’s top tax rate is now one of the highest in the world, the study added.

Tom Clougherty, executive director of the Adam Smith Institute, said: ‘The Government says the forthcoming Budget will be all about growth, but no amount of tinkering around the edges will make up for the fact that we have an extremely uncompetitive tax regime, which is increasingly making hard-working entrepreneurs wonder why they bother.’

'Yes, we need to balance the budget - but high taxes are not the way to do it. What we need to do is couple a smaller, more efficient public sector with a dynamic, enterprise economy.'

The report cited surveys suggesting that up to 43 per cent of financial services professionals and 23 per cent of companies in the sector – which provided £66billion in tax receipts in 2009 – have considered leaving the UK. And it warned that, even if they do not leave the country, many high-earning wealth-creators are likely to work less, retire earlier and put more money into tax shelters if they feel they are being asked to hand too much over to the tax man.

The report's authors Peter Young and Miles Saltiel said research showed that 'the behavioural response to the new higher rates of tax is strong and that this is bound to hurt tax receipts,'.
They added: 'While many people saw the previous top rate of income tax as too high at 40 per cent, most put up with it.
'The same cannot be said of the new 50 per cent top rate, which on the evidence constitutes a tipping point.'

Former Tory Cabinet minister John Redwood last night urged Mr Osborne to act on the report's findings.

Mr Redwood said: 'We all want to get the rich to pay more tax but the way to do that is to have a competitive tax rate. I don't think the 50p rate - or 52p with the extra National Insurance - is the optimum rate for raising tax and I hope that the Chancellor will now look at this again.'

You can read it in full in the Daily Mail here.

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Old Teaser

10 March 2011

The Daily Mail writes on the negative financial costs of the 50p tax rate following the release of the Adam Smith Institute's report, claiming it will result in less revenue.