THE INSTITUTE for Fiscal Studies scotched Labour’s claims that its plan to increase the top rate of tax to 50p would raise an extra £3bn for the Exchequer, saying yesterday that the change was more likely to boost coffers by just £100m.
Economists, business leaders and politicians, some from Ed Balls’s own party, have also hit back after the shadow chancellor announced a Labour government would increase the rate in order to generate a budget surplus by 2020.
Paul Johnson, the director of the IFS, and David Philips, a senior economist, warned that “the best evidence we have still suggests that raising the top rate of tax would raise little revenue and make, at best, a marginal contribution to reducing the budget deficit an incoming government would face after the next election”.
The pair added that there is very little evidence to support Balls’s claim that the increase would generate £3bn a year for the Treasury.
The Institute of Directors accused Labour of burdening business with the job of financing the state. Chief economist James Sproule said: “Ed Balls has shamefully prioritised short-term political gain over the long-term national interest,” and called for Labour to state its position on National Insurance, amid fears that Balls and Miliband may get rid of the current cap on most employee contributions. This could see employees paying 52 per cent tax overall when they hit salaries of £41,000, according to the IoD.
“Our tax system is already precariously imbalanced, with the top one per cent of earners paying 30 per cent of all income tax collected,” Sproule added. “Tax revenue is too dependent on a concentrated minority. Labour’s proposal would lead to the state taking over half of someone’s earned income in taxation. This crosses a line, penalising aspiration and wealth creation”.
David Cameron also hit out at the policy, telling an audience at the Federation of Small Business’s annual conference that the policy was “politically convenient” but “very bad” for the economy.