Leading economists call for coalition to ditch 50p rate

Capital Economics' Roger Bootle is among 20 of the UK's leading economists urging the coalition to drop the 50p tax rate, calling the top levy a "self-defeating" way for the Treasury to raise money because it risks driving away the nation's wealth creators just when it needs them the most.

In a letter to the Financial Times, the signatories said they are concerned the 50p income tax rate is "doing lasting damage to the UK economy".

It comes as Chancellor George Osborne last night said the coalition had revised down its short-term hopes for the economy on recent, weaker-than-expected data in retail spending, construction and output.

The economists write in their letter that they welcome the government's decision to continue to promote growth, but they argue while other major economies have successfully returned to pre-recession levels, the UK has not.

They argue the 50p top rate makes the UK uncompetitive internationally and puts unnecessary constraints on entrpreneurs to create new businesses.

Osborne has always maintained it is likely to only be a temporary measure. The Chancellor, who has decided to keep the tax in his first two budgets, admitted it could do "lasting damage" to the economy if it were permanent.

But, when presenting the March 2011 Budget, he said: "I've said before that now wouldn't be the right time to remove it, when we're asking others in our society on much lower incomes to make sacrifices."

The 20 economists write today: "[The 50p tax] is often portrayed as a justified tax on the rich but the economic damage it causes means that it is against the interests even of ordinary workers who don't pay it."

The letter in full

"Sir, We welcome the government putting the promotion of growth at the top of its agenda given the fragile state of the UK economy. Other major economies have got back to pre-recession output levels; the UK has not.

In this context, we are concerned that Britain's 50p income tax is doing lasting damage to the UK economy. It gives the UK 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 UK has already slipped from second to fourth place as a destination for inward investment. It punishes wealth creation by imposing on entrepreneurs and business people a marginal tax rate in excess of 50 per cent once national insurance contributions are added in. This is particularly damaging when the UK needs to create new businesses in new industries and promote growth by small companies, which can grow fast. It applies to just 1% of taxpayers, who already pay 24% of all income taxes.

If a small portion of these highly mobile workers move elsewhere because of the 50p rate then it is clearly a self-defeating way for the Treasury to try to raise money, and a reduction in tax avoidance would be more effective. It is often portrayed as a justified tax on the rich but the economic damage it causes means that it is against the interests even of ordinary workers who don't pay it.

We call on the government to drop the 50p tax at the earliest opportunity as part of a package of measures to stimulate growth. Only by returning to an internationally competitive tax regime will Britain enjoy long-term sustainable economic growth."

DeAnne Julius, Chairman, Chatham House; former member, Monetary Policy Committee

Sushil Wadhwani CBE, Chief Executive, Wadhwani Asset Management; former member, Monetary Policy Committee

Bob Rowthorn, Emeritus Professor of Economics and Fellow of King's College, University of Cambridge

Danny Quah, Professor of Economics, London School of Economics

Bridget Rosewell, Volterra Consulting

Paul Ormerod, Volterra Consulting

Mark Harrison, Professor of Economics, University of Warwick

Ronald MacDonald, Adam Smith Professor of Political Economy, University of Glasgow

Michael Ben-Gad, Professor of Economics, City University London

Prof Keith Pilbeam, Director of Business Economics, City University London

Anne Sibert, Professor of Economics, Birbeck College, University of London

Nick Bosanquet, Professor of Health Policy, Imperial College, University of London

Roger Bootle, Capital Economics

Patrick Minford, Professor of Applied Economics, Cardiff University

Kent Matthews, Head of Department, Cardiff University

Robert Mcnabb, Professor of Economics, Cardiff University

Panicos Demetriades, Professor of Economics, University of Leicester

Stephen Hall, Professor of Economics, University of Leicester

Gianni De Fraja, Professor of Economics, University of Leicester

Peter Sinclair, Professor of Economics