LABOUR’S Ed Balls was facing mounting and angry opposition from the business community last night over his plans to increase the top rate of tax to 50p if his party is elected in 2015.
The shadow chancellor claims that his tax hike would raise £3bn a year and help cut the budget deficit, helping him meet a new commitment to eliminate the current deficit (excluding capital spending) by 2020.
But the estimate was widely criticised by business leaders, economists and the Tories, who believe that it will either lead to a reduction in revenues by chasing away investment and reducing effort, or at best yield only a very small sum at the cost of a big hit to competitiveness.
Sir Ian Cheshire, chief executive of FTSE 100 giant Kingfisher, said the move had sent an “anti-business message”. “Raising the rate is bad economics and sends an anti-business message that may undermine investment plans and the recovery,” he said.
Pimlico Plumbers boss Charlie Mullins labelled it a “desperate” move. “This is nothing short of economic vandalism,” Mullins said.
“Taking half of everything someone earns over £150k is a disincentive to working hard, and is sending out the wrong message at a time when we need to encourage entrepreneurial instincts,” he added.
Writing in the Daily Telegraph today, Mayor of London Boris Johnson called for George Osborne to strike back, urging the chancellor to “open up some more blue water” between Labour and the Conservatives by cutting the top rate of tax back to 40p, from the current 45p.
Meanwhile Lord Jones, a trade minister in Gordon Brown’s government called the plan “good politics and lousy economics,” adding: “He’s playing to the gallery and taking the country back to tribalism and socialism. It raises very little money and it’s a sign that around the world, we don’t want to be a low tax economy”.
His comments were echoed by former City minister Lord Myners, who said it was “not clear ... how this will help the UK economy compete effectively with the economies of east Asia.”
Luke Johnson, founder of Risk Capital Partners, also raised concerns about the hike, telling City A.M: “It’s very poor economics. Introducing a 50p rate would act as a discouragement to enterprise, it’s pure politics of envy and it sends a strong signal to wealth creators that they’re going to be punished for effort,” he said.
And Xavier Rolet, chief executive of the London Stock Exchange Group, warned that Labour’s move could discourage investment into the UK.
“I think there will be an impact,” he told the BBC. “I think fiscal policy sends a powerful message and has a powerful impact on investment decisions.”
Balls was forced to hit back at his critics, claiming that the 50p tax rate would be temporary until the deficit was reduced.
“We are a pro-business party. This is not an anti-business agenda but it’s an anti-business as usual agenda,” he said.