Andy Burnham has been cautioned against introducing a 50% income tax rate for individuals earning over £125,140, a move that could become policy if he becomes Prime Minister. The warning comes from tax experts who note that a similar rate in the past generated minimal revenue for the Treasury, as the wealthiest altered their financial behaviour to avoid the higher charge.
Historical Precedent of the 50% Rate
The last time the top rate of income tax stood at 50%, it raised surprisingly little for the public purse, according to The Times. The 50% rate was in effect for three tax years from April 2010, and experts describe it as an unsuccessful experiment. Mike Hodges of accountancy firm Saffery commented: “The most recent experiment with a 50 per cent top rate of income tax … wasn’t a conspicuous success and should probably serve as a warning for any future chancellor.”
Burnham's Stance and Expert Reactions
Mr Burnham told The Telegraph last year that there was “definitely a case” for raising the top rate from the current 45%. The 45% additional rate applies to taxable income exceeding £125,140 in England, Wales, and Northern Ireland. However, Robert Salter, a director at Blick Rothenberg, explained: “The problem with touching the additional rate is that it brings in very little for the Treasury. Adding 1p would raise about £230million. By comparison, raising the basic rate by the same amount raises about £7billion.” He added: “So it's probably not worth it for Andy Burnham because it is so limited in what it can generate.”
Political Context and Stability Concerns
Chancellor-in-waiting Ed Miliband had proposed a 50% rate in his 2015 election campaign, which was unsuccessful. Stephen Kenny, a tax partner at PKF Littlejohn, noted: “The feeling at the minute is that it's all a bit of a joke. Top earners are sick of all the rumours and conversations about wealth taxes, exit taxes and income tax rises.” He stressed: “Whatever Andy Burnham does, he needs to show he is going to lead a stable Government that won't keep changing its mind.”
Implementation Challenges
Nimesh Shah of Blick Rothenberg warned that if a 50% rate were announced to take effect at the start of the following tax year, high earners would likely accelerate income to avoid it. He stated: “A mid-year rate increase should not be ruled out, but it is practically very difficult to implement and creates huge complexity.” Mr Salter suggested that framing the tax as a temporary measure could help sell it to the public: “That would be a way of selling it to the public as a necessary measure in exceptional circumstances.”
The debate highlights the delicate balance between tax policy and revenue generation, with experts urging caution against repeating past mistakes.
