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No decision on 50p tax this year, says Downing Street

Official figures show that the tax could raise nearly £13bn over five years, as PM says there will b

By Samira Shackle Published 08 September 2011 9:59

The 50p tax rate continues to cause tension within government, as Downing Street made it clear last night that there would be no decision on scrapping the rate this year.

A spokesman for the Prime Minister said it would be difficult to make a decision before 2012, when we will have the results of a review into the income tax rate for those earning over £150,000. Realistically, it would not be politically expedient to make a decision before 2013, when the public sector pay freeze ends. The tax is too charged with political symbolism about fairness to be scrapped without being seen to provide relief elsewhere, too.

Although Osborne has expressed doubt over how much money the tax raises, official figures released by the Treasury show that the 50p rate would raise £12.6bn over the next five years, a calculation which incorporates the chance that top earners might leave the country to avoid the tax. This would mean that by 2015-16, the 50p rate would raise £3.2bn more than if the top rate was 40p. It provides ammunition with those who disagree with a letter sent by 20 economist to the Financial Times, calling for the rate to be scrapped early.

Yet debate around the controversial tax rate rolls on. In an interview with the New Statesman's political correspondent, Rafael Behr, Danny Alexander makes clear his priorities on taxation. Here is an extract from the interview (available in this week's magazine, currently on the newsstands):

From the Treasury perspective, the main Lib Dem contribution to government has been the plan to raise the income-tax threshold to £10,000 by the end of the parliament. Alexander is very attached to this policy as a way of compensating people on low incomes for the cuts. "I think it's a direction that we will want to push further," he says. How much further? "I don't see why, in the next parliament, 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. That, to me, is a higher priority than reducing the overall tax burden on the wealthy." I take this to mean that he rejects the aim, supported by many Conservatives and endorsed by a group of 20 economists in a public letter to the Financial Times, of abandoning the 50p top rate of income tax. "At a time when the whole country is facing serious financial challenges, the priority needs to be people on low and middle incomes."

Nick Clegg and Vince Cable have both made it clear that they have no ideological objection to scrapping the tax, as long as it is replaced by another measure to tax the rich. One measure they are looking at is a property tax. Tim Farron, the president of the Liberal Democrats, was more unequivocal:

What an outrage, in tough times like this, if the government was to give a tax cut to those who earn more than £150,000 a year and not give any more to those people who are struggling to get by, many of whom are paying the price for the profligacy and recklessness of very wealthy people that got us into this mess in the first place.

Meanwhile, Conservatives continue to be frustrated with the fact that the tax rate has not been dropped. Eric Pickles, the Communities Secretary, conceded that the tax could be dropped only "when the time is right", but added:

I think there is a strong and reasonable case to say, 'Come on, this is not actually contributing very much'. On balance, it's probably doing more damage than it's doing good.

This latest debate was triggered after 20 economists wrote to the FT to urge George Osborne to abandon the top rate in order to stimulate the faltering economy. As we at the Staggers have argued repeatedly, reversing their hike in VAT would do far more to stimulate the economy.

Tags: Tax

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15 comments

Thu, 2011-09-08 10:44 — Awake!

the Uk is seen as a high tax economy in a globalised market place- keep fiddling Nero...

Thu, 2011-09-08 10:47 — Marcus (not verified)

I say again, Road Tax and TV License cuts would be wonderful.

You could cut complexity and the bureaucracy by doing this, thus saving the government many millions more.

Thu, 2011-09-08 11:06 — Mrs,M L Bonwick-Jones (not verified)

George Osborne needs to scrap the 50p Tax Rate it was there just to make Gordon Brown look good ,it was political not practical. yes we are all in it together, Joe Bloggs needs someone to employ him and his employers need people to employ, and it is no good cutting off your nose to spite your face the 50p rate does not do more then the 40p rate did. There must be other ways of dealing with people who are far more concerned with personal wealth and Tax Dodgers without damaging those who create jobs other wise they will take themselves off abroad, these people need the means to be able spend and invest, create jobs and growth.
There are other ways such as merging NI and Income Tax that may help, you could even cut the duty on petrol that should help , George Osborne needs to remember that doing what is popular and what is needed may not be the same thing!

Thu, 2011-09-08 11:14 — Paul Hillyard (not verified)

People forget that the rich have had a significant cut in corporation tax from the Tories and are due further cuts in 20102 and 2013.

For businesses the CT rate is far more relevant for investment decisions.

Indeed reducing income tax can have a negative effect on business investment as owners can take more in salaries, bonuses and dividends rather than leaving the funds in the company which lower levels of CT encourage.

If they were really interested in increasing investment they would lobby for a reduction in CT.

Instead we get a rich "flash mob" formed to bully a compliant Tory Chancellor.

Thu, 2011-09-08 11:51 — Mrs,M L Bonwick-Jones (not verified)

Osborne is not a bully , If he were he would have already have scrapped the pointless 50p rate which is just a token to keep the masses happy for a while, but only for a while untill we go into recession again due to a lack of growth, Even Ed Balls would have dumped it. Yes George Osborne rich and posh so what! I care about what he does rather then who he is. This i do not like someone because they are different from me does not help, nor does hoping some one will fail just because they are from a different political party, But that has been a problem for Labour for the past 13 years Party first and country second, Labour used to be a honourable party now they actually want this country to go to pot just to prove some kind of political point.

Thu, 2011-09-08 11:52 — mike cobley (not verified)

Across Europe millionaires line up to say yes, we can and should pay more in tax. Meanwhile in Britain, millionaires and their lackeys insist that they need to pay less. If they got their way, it wouldnt be just the knuckleheads out on the streets next time there's a riot.

Thu, 2011-09-08 11:57 — mike cobley (not verified)

"50p rate...is just a token to keep the masses happy..."

Er, did you actually read the article? - "Official figures show that the tax could raise nearly £13bn over five years..." So, M.L. Bonwick-Jones (Mrs), in your world £13bn is merely a token amount, eh? Thank you for sharing your comedy genius with us all here.

Thu, 2011-09-08 14:13 — Mrs,M L Bonwick-Jones (not verified)

I dont think so!
Econimists dispute these official figures, they argue the 50p rate 'punishes' wealth and entrepreneuship it is often portrayed as a justified Tax on the rich but the economic damage it causes means that it is against the interest of the ordinary worker who does not pay it, besides can we wait 5 years for something that may or may not work. What this country needs is people working in the jobs that have been been created now by the wealth creators , who hopefully will not leave this country as we have the most difficault Tax systems in the world for them.

Thu, 2011-09-08 14:56 — mike cobley (not verified)

Oh, boo hoo, those poor job creators, the entrepreneurs who lay those wonderful golden job eggs. Er, those are the job eggs that never hatch, by the way.

Thu, 2011-09-08 16:05 — Awake!

@ Paul Hillyard
what????????????????????????????????????????????????????????????????????????????????????
'Indeed reducing income tax can have a negative effect on business investment as owners can take more in salaries, bonuses and dividends rather than leaving the funds in the company which lower levels of CT encourage. '
Salries are taken off before CT is calculated- bonus and dividends are above the line, agreed- but u really think that money is kept in the company because the management can tell staff 'hey guys, great job last year, we're not sharing it though cos it's more tax efficient to keep it in the firm!' U think people going to stand for that...
More unworkable solutions from people on the site I see, confusing company turnover with peoples income-Very easy when it's not your money I suppose....
oh and cobley, show me the MILLIONAIRES who are finding so hard to write those cheques? some billionaires? was it 2 notably?
'Official figures show that the tax could raise nearly £13bn over five years..." How can anyone KNOW that- just more nonsense arguments- how the hell do u model people leaving the country OR not coming to work here in the FIRST place cos of 50% tax rate? it's not possible!! its balls type thinking. And the 20 economists? well they're guessing as well, but there's 20 of them vs cobley and eaton and jealous gang, so hard done by in life- pathetic!
Let's just keep pushing jealousy motivated policies and wonder why the scandis clean up so well... clowns

Thu, 2011-09-08 16:21 — Awake!

hey if it's a great policy why not 60% Or is there an optimum level- IS THERE AN OPTIMUM LEVEL??

Thu, 2011-09-08 17:33 — Dark Heart of Toryland (not verified)

Would those who oppose the retention of the 50p tax rate care to provide some hard evidence to support their assertion that the tax is harmful? How so?
We have just had figures demonstrating that emigration from the UK has declined markedly over the last year, which hardly backs up the assertion that the selfish rich are fleeing the country.
It is also received wisdom that tax cuts for the wealthy are usually salted away as savings, and will therefore do nothing to revive the economy. On the other hand, the poor cannot afford to save, and any tax cuts targeted at them will therefore result in increased spending, contributing towards economic growth.
Finally, we are constantly being told by the Condems that reducing the deficit is an absolute priority, to be achieved at all costs. If the 50% tax rate is calculated to raise nearly £13 bn over the next 5 years, then cutting it is going to leave a £13 bn hole in government finances. Would those who want to see the 50% rate cut care to explain what tax increases or further cuts they they would implement to fill this hole?

Sat, 2011-09-24 23:59 — Eddy S (not verified)

best thing to encourage investment, start-ups and a general feeling that the UK is the best place to setup a business is reduce corporation taxes - personally i think around 15% would be right. green taxes should increase and maybe road traffic taxes should be implemented to finance any gaps in revenue - although i think the low taxation will encourage companies such as google to pay more taxes in UK as well as encourage many other start-ups to setup here rather than elsewhere.

Thu, 2011-09-08 21:05 — Awake!

Er, 50% is top 1%, how is that gonna show up on immigration...this is a low

Thu, 2011-09-08 21:18 — Awake!

As for what it rakes in vs what you lose, it's not possible to really calculate unless using a static picture, but that's not possible since the argument is that the rate will change that picture. It's akin to the Heisenberg principle in particle physics, or Soros' principle of reflexivity. The fact is the uk is now perceived as a high tax economy and high earners have left, and potential inflows won't come. If that's acceptable so be it but the brain drain has happened before and can happen again, unfortunately once people make the difficult decision to leave (family roots and friends) they tend not to come back. It's too disruptive on kids keep changing schools. The absolute rate isn't the point, it's the relative rate. Make it 60 won't affect me but don't kids yourselves in a globaliser economy with international companies and economies competing for human capital. Someone who aims to make that kind of dough cares about 10% don't kid yourself