Plea for abolition of 50p tax rate
Chancellor George Osborne should abolish the 50p top rate of income tax in his Budget on March 23, a free market think-tank has said.
The Adam Smith Institute warned in a report that the 50p rate on incomes over £150,000 would cost the Government £350 billion and lead to flat economic growth over the next decade as high-earners flee overseas and use tax avoidance strategies to protect their income.
The think-tank also called on Mr Osborne to reduce the 40% higher rate of income tax to 35%, dump the £30,000 charge for "non-doms", reduce capital gains tax from 28% to 18% and restore personal allowances for those earning over £100,000.
The report cited international rankings putting Britain 83rd out of 86 leading economies on the level of its top income tax rate - with only the Netherlands, Denmark and Sweden taxing high-earners more.
And it quoted historical evidence from around the world showing that increasing taxation above a certain "tipping point" level reduces both the total tax take and the proportion paid by the rich.
Adam Smith Institute director Eamonn Butler said: "It's not that high-fliers can't afford a 50p tax rate. It's just that they quite understandably resent governments grabbing half of everything they earn. That is why they are falling into the open arms of our competitor countries, who make them feel far more welcome."
The report cited surveys suggesting that as many as 43% of financial services professionals and 23% of institutions in the sector - which provided £66 billion in tax receipts in 2009 - have considered leaving the UK.
And it warned that, even if they do not leave the country, many high-earning wealth-creators are likely to work less, retire earlier and put more money into tax shelters if they feel they are being asked to hand too much over to the tax man.
The introduction of a £30,000 charge on "non-domiciled" taxpayers in 2008 has already cost the Treasury an estimated £800 million as high-fliers choose not to locate in the UK, according to the report.
It said a similar effect can be expected from the 50p rate announced by Mr Osborne's Labour predecessor Alistair Darling in his 2009 Budget and implemented last year.