A think tank has attacked the “dubious” arguments being put forward by those for and against the 50p tax rate.
Chancellor George Osborne is expected to announce a reduction in the top rate in this week’s Budget.
The Social Market Foundation says suggestions the top rate undermines entrepreneurialism are questionable and that claims the tax is entirely progressive are untenable.
Writing on the think tank’s website, SMF director Ian Mulheirn says large increases in earnings for top earners makes the argument that the 50p rate puts people off trying to increase their income “absurd”.
He says: “If a FTSE CEO was paid £1m in 2002 and faced a 40 per cent average tax rate, she would be taking home £600,000. Even if that CEO’s gross pay had merely doubled since then, an average tax rate of 50 per cent would leave her with £1m net of tax for doing the same job. So with the higher tax rate, it is still much more worthwhile working hard to get to be the boss.”
Mulheirn says tax planning to reduce the amount collected from top rate payers could leave lower banded taxpayers picking up the shortfall, making it a regressive measure.
He says: “The pro-50p camp must accept that there is a chance that the measure is regressive. Some argue that it is an important piece of symbolism even if it does not raise money. But, if the Institute for Fiscal Studies is right and the 50p rates does cost more than it raises, then that tax shortfall will have to be made up from somewhere. Is it really fair to tax lower-paid people more just for the sake of a symbol?”
Mulheirn adds that cutting the rate will do little to help the Government boost economic growth, one of the Chancellor’s key arguments in favour of the cut.