The new 50p tax rate will stifle the economy and increase unemployment, according to a new study by the TaxPayers' Alliance.
A report issued by the TaxPayers’ Alliance has called for the new 50p upper tax limit on high earners, which is being introduced next April, to be abandoned.
The Alliance’s study says the tax rate would discourage entrepreneurs from starting up a business and result in fewer jobs.
It also criticises the government for not "paying nearly enough attention" to how its policies affect entrepreneurs who create the majority of new jobs.
The new rate will mean that entrepreneurs can potentially be taxed at a top rate of 92% if they are taxed on savings, income and inheritance. Under the current system, the rate is 90%.
Matthew Sinclair, research director at the TaxPayers' Alliance and co-author of the report, said: "The new top rate that the government is proposing won't just fail to raise significant revenue, by putting off potential entrepreneurs, it will reduce employment and make it more likely that ordinary Britons can't find work.”
Writing in The Spectator, Sinclair added: “It was a crass political stunt, designed not to address the crisis in the public finances but the headlines the day after the Budget, and should be abandoned.”
The report found that there has been just a 0.3% increase in new business registrations between 1997 and 2006 despite significant public expenditure on services to boost entrepreneurship.
It is feared that as many as 25,000 businessmen could leave the country after the introduction of the new tax rate. This would represent a cost of approximately £800m a year, with as many as 140,000 jobs lost over three years across the UK, according to the Centre for Economics and Business Research.
David Cameron, the Tory leader and George Osborne, the shadow chancellor, have agreed that if they win power the 50p tax rate will stay until the back end of their first term, with other economic and tax priorities dealt with first, despite increasing pressure from the Tory Right to make dropping the measure a priority.
© Crimson Business Ltd. 2009