13 October 2011
Scrap 50p tax to boost jobs and long-term growth, says City of
London
The City of London Corporation has today published a topical
issues paper – “The UK’s Marginal Tax Rate: Considerations for the
longer term” – providing an economic analysis of the detrimental
impact the 50p top rate of income tax could have on long-term
growth in the UK.
Authored by Llewellyn Consulting, the paper draws on a wide
range of research to demonstrate the implications of the 50p tax on
productivity, investment, innovation, employment and
emigration.
Commenting on the paper, the Policy Chairman at the City of
London Corporation, Stuart Fraser, said:
“It is clear that if the UK Government truly wants to boost jobs
and growth in the long-term, it must scrap the 50p tax.
“Whilst the City acknowledges the need to create a tax regime
that is seen as fair, we must also be careful that it doesn’t
jeopardise our future economic security.
“Promoting innovation and entrepreneurship is one of David
Cameron’s top priorities for generating growth; this tax
discourages such activity.
“We must also do all we can to ensure the UK retains
highly-talented individuals, especially those working in highly
mobile, global industries such as financial services, and to ensure
it remains attractive to the top talent from around the world.
“On economic grounds alone, maintaining the 50p tax rate is hard
to justify.
“George Osborne has stated time and again that he views this
measure as temporary; whilst this is a positive message for the
business community both at home and overseas, actions undoubtedly
speak louder than words and the Chancellor must make good on his
promise to scrap the tax sooner rather than later.”
Key points
- The structure of the UK income tax system differs significantly
from other OECD countries
a. Even the previous top (40%) tax
rate takes effect at an income level that is relatively
closer to the average wage than in most other countries (it starts
at 1.3 times the average wage)
i. In the US, the highest tax
rate (42%) kicks in at a level that is 10 times the average
wage
b. High earners in the UK face
marginal income tax rates that are high by any global
standard
- A high rate of marginal income tax shifts the balance between
risk and reward
a. Innovation
i. In the long-term, innovation is
the main source of growth; lowering the costs of the production and
distribution of existing products and creating new ones
ii. Recent multi-year analysis by OECD
indicates high marginal tax rates discourage entrepreneurship by
reducing the size of potential rewards without lowering the risk of
failure
b. Emigration
i. Very high productivity,
English-speaking individuals have a choice of working in various
different locations around the globe – particularly in financial
services
ii. These individuals are thus sensitive to
any changes in marginal tax rates, especially if they are young and
have no family commitments
iii. Those who emigrate may well acquire ties that make it
less likely that they will return to the UK, even when/if the tax
regime is lightened
Ends
Download a copy of "The UK's Marginal Tax Rate:
Considerations for the longer term" (PDF, 888kb)
“The UK’s Marginal Tax Rate: Considerations for the longer term” is
the first in a series of papers commissioned by the City of London
Corporation to contribute to the debate on current issues and help
the formulation of public policy. These papers are based on a
review of existing evidence on different topics and offer an
analysis of the options available.
About the City of London
The City of
London Corporation supports and promotes the Square Mile as the
world’s leading international financial and business centre and
provides local government and police services for workers,
residents and visitors. It also provides valued services to London
and the nation as a whole including management of Guildhall Art
Gallery, the Barbican Centre, the Central Criminal Court at Old
Bailey, 10,700 acres/4,240 hectares of open space (including West
Ham Park, the City Gardens, Hampstead Heath, Epping Forest), three
wholesale food markets and acts as London’s Port Health
Authority.
About Stuart Fraser
Stuart Fraser is
Chairman of the Policy and Resources Committee of the City of
London Corporation.
View his biography
Download a photo of Stuart Fraser
About Llewellyn Consulting
Llewellyn
Consulting is a London-based, independent economics consultancy,
specialising in macroeconomics, economic policy, and the
implications for business, and investors. It works closely with
governments, businesses, and banks, providing quality, impartial
analysis and advice to inform senior-level strategic
decision-making and policy.
Press contacts
James Abbott
Tel 020 7332 1754
Mob 07831 543188
Email
james.abbott@cityoflondon.gov.uk