Has Alistair Darling made a mistake with the new 45% tax rate?
As Alistair Darling looks to put the finishing touches to his budget due on 22 April, there is concern that the introduction of a new 45% tax rate for high earners in the UK could actually be counter-productive. While the Treasury expects an increase of around £1.6 billion a year from 2011 onwards the Institute for Fiscal Studies believes that the action could have a detrimental impact on revenues for the government.
Those who would be caught by the new tax band may either look to reduce their workload, and their income, move overseas or those from overseas working in the UK may well decide not to visit the country. There is also potential for pension fund payments to be increased which would actually take money out of the state revenue pot and the potential for reduced spending on the high street which will affect business tax and VAT income.
The Institute for Fiscal Studies has forecast that the net effect could be a reduction of around £160 million in state tax revenues at a time when the government is crying out for further income to reduce the budget deficit and growing national debt.
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