Budget 2012 reactions: Cutting the highest rate of income tax from 50p to 45p

The government stripped back the top rate for high earners. But will it boost entrepreneurialism?

A reduction in the top rate of income tax was among the most debated issues prior to chancellor George Osborne’s Budget speech. And those calling for a cut were not disappointed.

By cutting the highest rate of personal income tax from 50p to 45p from April 2013, the government announced that the UK would now compete internationally for entrepreneurial and corporate talent alike. For the next 12 months the UK will continue to have the highest top income tax rate in the G20.

In the US the federal top rate is 35% but rises to as much as 44% in states such as New York. The 45p rate will be lower than rates for high earners in Australia, Canada, France, Germany, Italy and Japan. So what impact will the cut have entrepreneurship in the UK? And was it enough to placate the high earners? Business owners, investors and experts gave their views:

Jos White, co-founder, Notion Capital:

“Stripping the 50p tax rate back to 45p is a sensible move and should help to prevent further disincentives for people who have the choice between working in the UK and elsewhere. In today’s world, talent is increasingly mobile and the UK needs to ensure that it is welcomed and supported here. 

“I’m pleased to see the chancellor moving in the right direction on this. However, by introducing alternative taxes on wealth, the government risks giving with one hand and taking away with the other. Despite enterprise friendly reductions in corporation taxes, the government seems determined to penalise success and I’m not sure that sends out the right signals or motivates people in the right way.”

Bill Dodwell, head of tax policy, Deloitte:

“The cost to the UK economy isn’t the tax paid by the highly-paid person who leaves, or who doesn’t come to the UK, but rather the cost of the activity led by that individual now being based in a different country. Where teams relocate, or where entire corporate activities move, the UK’s loss could turn out to be permanent.” 

Phil Orford, chief executive, The Forum of Private Business:

“Reducing the top income tax rate to stimulate entrepreneurship and continuing to cut corporation tax are much-needed measures and we also welcome the concept of merging income tax and National Insurance as a first step in what looks to be long overdue reforms to the tax system for small firms, but the chancellor could have gone further to give businesses and the economy a bigger boost.”

Thomas de Freitas, managing director and director of specialist markets, Communicate Recruitment Solutions:

“As a medium-sized business neither the top end tax cut to 45% nor the increase in Stamp Duty particularly affects us. Our consultants are typically graduates in their mid-20s to mid-30s who are looking to get onto the housing market – in London. Obviously Corporation Tax decreasing is a boon for us as a business, but for our individual consultants the budget will have very little effect – more is the pity.”

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Dave Chaplin, CEO and founder, ContractorCalculator.co.uk:

“Jean Baptiste Colbert said ‘the art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing’. We still have a marginal tax rate of 60% for those earning £100,000, £116,000, £210,000. We are still plucking half the feathers off many of the geese, and the geese are hissing very loudly with many of them having already done something about it. Some haven’t bothered growing more feathers, others migrated, and plenty more have employed strategies to avoid HMRC’s excessive plucking. Whilst we welcome the additional rate dropping to 45%, we really need to remove this marginal rate, and have a tax regime that encourages those with the best plumages to flock to the UK, not the opposite.”


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