Fate of the 50p income tax rate
During the past week or so, the AccountingWEB editors' in-box has been swamped with messages and press statements putting forward arguments for and against the 50% tax rate band.
Is this all an artificial bit of political froth generated to fill the silly season vacuum, or is it a vital debate in which the views of AccountingWEB's members need to be brought to the Chancellor and business secretary's attention?
I'm concerned that in this instance my habitual cynicism may have clouded my news judgement and I've ignored the comments from the likes of Ernst & Young, UK200Group and Richard Murphy to concentrate on other issues. Do many people here feel strongly about the issue and want to go into it in more detail?
As a quick overview, here are some of the points pro & con:
Srap the 50% band
- "There’s not much point in having taxes that are very economically inefficient." Chancellor George Osborne, Radio 4 Today programme, 16 August. The chancellor has reportedly asked HMRC to evaluate the impact of the rate on Self Assesment takings after its first year. The findings should be ready in time for the Budget.
- "It punishes wealth creation by imposing on entrepreneurs and business people a marginal tax rate in excess of 50% once national insurance contributions are added in... This is particularly damaging when the UK needs to create new businesses in new industries and promote growth by small companies, which can grow fast. It applies to just 1% of taxpayers, who already pay 24% of all income taxes."
- "A significant disincentive to doing business in the UK, providing a barrier to new business owners and executives from coming here, whilst also driving existing higher earners to foreign shores." Patrick Stevens, Ernst & Young
- "If something is not bringing in a profit and it cannot be made to do so, there is no point in continuing... In business and economic terms, if the 50% tax rate is not covering its costs then it should be scrapped but politically that's a totally different question!" Jonathan Russell, UK200Group
- "With National Insurance, top taxpayers pay over 50 per cent which means they are working more for the taxman than themselves... These high earners are often the creators of businesses and therefore jobs for those who do not have the same talent, management skills or qualifications. Do we really want to punish them for their successes and risk losing this hot-bed of talent?" John Kelly, Square One Financial Planning
Keep the 50% band
- "By definition most small businesses aren’t going to get in the top 1% of income earners – there are about 4m small businesses in the UK right now, at least (over 1m companies and 3m or so self employed). All small businesses that will grow fast will be limited companies – enjoying effective tax rates of around 20% or so, utterly undermining this argument." Richard Murphy, TaxResearch blog.
- "According to recent articles, a 1% cut in income tax would cost the Exchequer £4.5bn. So these economists think that putting £10bn into the hands of 300,000 already-very-wealthy people is a better recipe for the well-being of the country than (say) cutting EVERYONE’s income tax rates by 2p…" ChrisM, on Murphy's blog.
- "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." A Treasury spokesman reaffirming the government's commitment to the 50p tax rate on Tuesday 7 September.
Let me know if you're interested in this topic and what you think. If I've been mistaken about the significance, I'll make amends with a more detailed study of the arguments, and perhaps put it to a community poll. As always, your guidance is appreciated.