By Tim Montgomerie
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The Chancellor of the Exchequer is warned today that he needs to fashion a more competitive tax system for higher earners or Britain will lose those wealth creators to lower tax jurisdictions.
Using data from the World Economic Forum, the Centre for Economics and Business Research says that "the UK has gone from being a relatively low tax place to do business to one which is relatively uncompetitive compared with other larger economies";
Top rate of income tax in the ten largest world economies, 2011
The CEBR report notes that technology and open borders are meaning wealth creators are increasingly mobile:
"Younger and more global than their forebears, today’s generation of wealth creators have new choices because of digital banking, EU membership, sophisticated HR and remuneration arrangements introduced by increasingly sympathetic employers, financial deregulation, migration and a creative wealth management industry that reaches beyond a small world of billionaires and now offers tax management to small companies and professionals."
The CEBR says that a 45p rate is probably counter-productive, let alone the UK's current top income tax rate of 50p.
George Osborne isn't expected to act on 50p next week. Firstly because his review into the rate's effects isn't due to report until January and secondly because of Lib Dem opposition. The Lib Dems have sent mixed signals on 50p; sometimes suggesting they oppose its abolition under any circumstances but on other occasions suggesting they'll accept lower income tax on high earners in return for some kind of tax on wealth. Three days ago, pre-empting January's study, Danny Alexander said that 50p was raising money.
Some Conservatives – notably Robert Halfon MP – believe that the priority for tax cuts should be petrol duty and other taxes that fall disproportionately on the low-paid. There is also an increasing clamour among Tory commentators – including Patrick O'Flynn and Iain Martin – to focus on the increasing number of professional workers who have been dragged into the 40p tax band. This, they say, is the real squeezed middle and 50p is a relative distraction.
If 50p is ever to be abolished it will need to be part of a wide-ranging tax reform package that is seen by the public to be fair. When that happens it is vital that Conservatives are seen to be in the lead and that the Liberal Democrats cannot claim to have stood up for ordinary workers against the 'nasty Tories and their friends in the City'. It is a great shame that the increase in the income tax threshold within the Coalition Agreement came from the Lib Dems. Many Tories (eg Edward Leigh on ConservativeHome) have long believed it should have been in our manifesto. In the next restructuring of the tax system the aim should be to further promote social mobility and social justice and we must set the pace and look like we are setting the pace.