Scrap 50p tax to help recovery, Osborne told

Scrapping the 50p tax rate without economic growth soon could prove perilous for Osborne
Scrapping the 50p tax rate without economic growth soon could prove perilous for Osborne

By Alex Stevenson

George Osborne faces pressure to scrap the 50p tax rate to help stimulate the stagnating economy.

A group of leading economists suggested the current tax rate was doing "lasting damage", after the chancellor decided to keep the top rate in his first two Budgets.

The experts, who include former monetary policy committee members DeAnne Julius and Sushi Wadhwani, claimed around one per cent of the total pay the 50p rate, or 320,000 people.

The UK has "one of the highest personal tax regimes in the industrialised world, making it less competitive internationally and making us less attractive as a destination for both foreign investment and talented workers", the 20 signatories wrote in the letter published in the Financial Times newspaper.

Former chancellor Alistair Darling introduced the 50p tax rate, which is paid on income over £150,000. Mr Osborne would lay himself open to accusations of protecting the wealthy if he did look to scrap the rate.

"This has got to stay in place until we get out of the crisis. It would be grossly unfair to remove it," the Guardian newspaper quoted Mr Darling as saying.

"To remove it today would be grossly unfair. If they do not pay their taxes then it is poorer people who are going to pay."

Ms Julius said there was evidence to support their view that the 50p rate has a negative economic impact in an interview with the Today programme, however.

"It's not going to raise very much money and at the same time it is a kind of signal to the entrepreneurs, and the people who invest in this country, that actually they're going to be penalised for that investment," she commented.

Arguments about growth could prove compelling for Mr Osborne, however, who addressed the "very unsettling times" faced by the global economy in a speech at the Lloyd's of London annual dinner yesterday evening.

Political divisions in Europe and the US were compounding bad news about economic growth and "a sharp oil and commodity price shock", he argued.

Britain's economy grew by just 0.2% in the second quarter and has been effectively stagnant for nine months.

"We warned repeatedly that the recovery would be choppy," he said.

"And we set in train a plan that was comprehensive and clear in its vision, but also flexible enough to withstand shocks along the way.

"The plan we have set out was designed in tough times for tough times. It is the rock of stability upon which any sustainable recovery depends and we will hold to it."

Shadow chancellor Ed Balls rejected the argument that the global market turmoil seen in recent weeks was responsible for the stalling economy.

"It's time George Osborne got out of his denial and admitted that Britain now faces a growth crisis, as a senior minister let slip this week," he said.

"And he should listen to the head of the IMF and one of the largest investment funds in the world who have warned that cutting too far and too fast risks economic recovery."


Load in comments
Politics @ Lunch

Friday lunchtime. Your Inbox. It's a date.