Stimulate business – abolish the 50p tax rate


The UK government plans an immediate overhaul of company taxes following a flood of businesses leaving Britain. One idea is to reform the unpopular Controlled Foreign Companies (CFC) tax. The other is to reduce to just 10% the tax on the proceeds of intellectual property.

The idea of reforming bad taxes like these is excellent news. But...

The one tax that is actually responsible for businesses flooding abroad is not these, but the 50p top rate of income tax. At 40%, people grudgingly feel that it is not worth moving. At least then you get to keep roughly half of what you earn (not quite, though, because you have to pay National Insurance Contributions too). But at 50%, people are taking home a minority of every extra pound they earn.

It's not just the bosses' own pay that makes them look to relocate abroad. They also find it harder to attract high-flying staff. So moving the business becomes a no-brainer. There are plenty of places, such as Switzerland, where the tax rate is half of that in the UK.

City friends tell me of one firm that has moved abroad which alone has cost the UK Treasury £1bn in lost taxes. A billion here, a billion there, and it soon adds up to serious money. But the biggest loss is perhaps from all those firms who might have set up or expanded in the UK, but decide not to because the high income tax rate means they cannot recruit good people as easily as they could elsewhere.

The coalition has been ruthless enough in tearing up other legacies of the previous government. It should tear up the 50% tax rate too. But it's just politics, isn't it? If the Conservatives had won the election outright, they might have been reluctant to tear up the 50% tax because it might look as if they were being kind to their rich friends. Now, in coalition, it isn't much better: Business Secretary Vince Cable seems to have a death wish for UK business, and many of his party's members support the idea of very high taxes on wealthy people. It's an envy tax.

Just the other day, policy chief Oliver Letwin MP was telling me how committed the government was to 'horizon shift' – doing what is right for the long term, rather than what looks good in the short term. And when is it's as obvious as the nose on Vince Cable's face that the 50% tax is actually driving and keeping business out of Britain and losing us both jobs and tax receipts, shouldn't the politicians then grit their teeth and do the right thing?