Budget 2009: Darling tax plans torn to shreds

Thursday 23rd April 2009

Alistair Darling's surprise move to impose a 50p top-rate tax has been condemned as a white elephant.

Much of the press attention and reaction to yesterday's Budget centred on the new 50p in the pound rate for people earning over £150,000, due to come into effect from next April.

The Conservatives have yet to decide whether to support the rise, with their shadow Treasury team refusing to confirm which way their MPs will vote.

The move has been seized upon as "attention grabbing" and a "distraction".

"This increase in tax for high earners is political posturing intended to beef up the idea that this Budget helps ordinary people," said Mark Wallace, campaigns director at the TaxPayers' Alliance.

"In reality, ordinary families of all income levels will see fuel bills rise, the cost of a pint rise; that means the cost of living will rise as a result of the Budget."

The criticism follows research from the Institute for Fiscal Studies (IFS) saying the new top-rate of tax would cost the Treasury by forcing high earners to leave the country.

At the same time, indirect taxation was increased through a two per cent rise in alcohol and tobacco duties, which kick in overnight. In addition, fuel duties will go up by 2p per litre from September onwards.

Liberal Democrat leader Nick Clegg said Mr Darling's tax announcements were the "biggest disappointment in this Budget".

"Britain's taxes are too heavy on those who can least afford it. And too easy to avoid for those who know how," he said.

"The 50p rate will further encourage the very wealthy to avoid tax unless we tackle the unfair loopholes they exploit."

Tony Bernstein, senior tax partner at HW Fisher chartered accountant, said many of the wealthier self-employed would move into a limited company structure to save on tax

"When corporation tax rates were last cut there was a huge increase in incorporations as a result and we're likely to see something very similar now, as the gap between corporate and personal tax rates widens," he said.

"For the employed, it is likely to result in an increase in equity-based remuneration, salary sacrifice and share options, where benefits are deferred."

In further comment, Mr Wallace said the Budget was turning Britain into an "acidic and unwelcome environment for business".

He said that the extremely serious economic conditions made "far more radical" measures needed.

"We are resigned to the fact that the government cannot resist the temptation to rake in some more money by taxing consumable items such as tobacco, alcohol and fuel, despite the severe impact that has on the poor," he told inthenews.co.uk.

"Increasing these taxes is exactly the kind of thing that leaves the poor facing an unnecessarily high burden ad disproportionately hits the poor."

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