In a letter to the Telegraph from the owners of 537 SMEs, all employing up to 1,400 people, the group chancellor George Osborne for heaping extra financial pressure onto British businesses at the same time as demanding increased economic growth: ‘The tax, which is in effect a 58p tax after national insurance is taken into account, puts wealth creators like us in a very awkward position,’ it says.
The 50p tax rate was introduced in April 2010, and was directed at those earning more than £150,000. But it was always meant to be a short-term measure and patience among the business community is wearing thin.
Several of the signatories have added personal stories to the letter, explaining how the 50p tax rate has impinged growth. ‘This tax prevents me from expanding or investing into my business,’ says Maurice Shearman of Ace Moulding Services. Andrew Denny, MD of printing machine manufacturer Fix-a-Form International, says: ‘With the Government taking half of what I earn, I ask myself who am I working for? Why do I bother? Why don’t I just close the business and become something else instead? If you earn your money, you’re resented’. And ‘Stop killing the goose that lays the golden egg,’ adds Chris Jenkins, MD of BWS Security Systems.
These business leaders are also at pains to deny that scrapping the 50p rate would be against the spirit of the ‘age of austerity’, saying: ‘We believe the richest should help the poorest in society. 1% of taxpayers are forecast to contribute nearly 28% of income taxes. But penalising high earners through an unfair, politically-motivated tax puts populist politics before sound economics.’ They even suggest that, far from filling public purse, the rate is bad for the UK economy: ‘The 50p tax is set to reduce government income and damage the economy, the public services and charitable giving,’ says the letter. The latter point was confirmed by data released only last week from sponsorship organisations Arts and Business.
As students of economics will recall, the effect was originally identified by Arthur Laffer in the eponymous Laffer Curve. His theory postulates that earnings actually begin to fall with extreme rates of taxation - people simply begin to work less as the incentives diminish.
The pressure is now on Osborne to review this controversial tax in his upcoming budget – after all both he and the Prime Minster have previously voiced their personal opposition to the tax. But will the chancellor risk angering the public by acquiescing to these demands? One thing’s for sure, MT wouldn’t like to be in his shoes right now…