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50% tax rate – absolutely in line with other countries

Declan Gaffney’s article on Left Foot Forward clearly explains how the 50p tax rate is in fact entirely in keeping with the marginal rates of tax for high earners in comparable countries. He brilliantly explains why the 20 economists are wrong to claim in the FT earlier in the week:

that Britain’s 50p income tax is doing lasting damage to the UK economy. It gives the UK one of the highest personal tax regimes in the industrialised world, making it less competitive internationally and making us less attractive as a destination for both foreign investment and talented workers.”

The BBC‘s reporting of this, quoting figures for the UK’s top eight trading partners, as well as Japan and Switzerland, appeared to confirm this. However, Declan Gaffney quotes OECD figures which actually show that the UK is in no way out of step with key competitors. In fact the BBC’s figures do not properly take account of sub-national taxes which in a number of countries are very important. As Declan reports:

Fortunately the OECD also publishes an ‘all-in’ series on top marginal rates taking account of sub-national and payroll taxes. In Table 1, we’ve matched this data up with the BBC’s figures and included Sweden. Note that the top rate in the UK is 51%, reflecting the 1% National Insurance Contribution above the Upper Earnings Limit (2% since April 2011,but these figures are for 2010).

From this table, six of the UK’s ten main trading partners have top marginal rates at or above 50%, or 49.8% if we want to be pedantic about France. Low top marginal rate countries are the exception among the UK’s main trading partners – Spain and the US – and even here top rates are 43%, considerably higher than the rates reported by the BBC.

The actual marginal rates of tax for top earners is as follows:

[table id=21 /]

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