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What happened to the 50p tax rate exodus?

We were warned that talented individuals would flee the 50p tax rate - so where have they gone?

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When former Labour chancellor Alistair Darling announced his "temporary" additional rate of income tax on people earning more than £150,000 a year in April 2009, there was a backlash in the City. There were warnings that senior skilled staff would leave the country and the UK would become an undesirable place for the industry leaders who are essential to achieve growth.

Alongside this, real threats were bubbling under. Brokers Tullet Prebon offered its teams the chance out move outside the UK because of the 50p tax rate. FTSE100 drinks company Diageo threatened to look at more favourable tax regimes. A letter to the Financial Times from a group of 20 leading economists claimed that leading hedge funds were looking abroad and that the additional rate must be abolished as a result.

So has this exodus transpired? And if not, what was all the fuss about?

The figures

The problem for both sides of the debate is that there are very few figures available. HM Revenue & Customs is set to write a report for chancellor George Osborne based on the self-assessment returns (the predominant method of taxation on the individuals affected) which must be submitted by 31 January. It is not clear whether this report will be made public – this will be an issue for the Treasury after it receives the report.

Current official figures from HMRC's survey of personal incomes suggest that the number of 50p, or additional rate taxpayers as they are technically known, in the UK has grown since the rate was implemented in the 2010-11 tax year. In 2010-11, there were 275,000 additional rate taxpayers; in 2011-12 the figure rises to 308,000.

However, these figures are not incredibly illuminating. First, they are almost a year old - last updated in April 2011 - meaning they do not take into account migration since then. Second, and more importantly, unlike the other rates of tax, the additional rate was not subject to inflation, with the result that more taxpayers on the margins would be caught through natural salary inflation. It's unlikely that these people would leave the country for the minimal amount they would be paying at the 50p rate.

The UK tax rate

What we can be clear about is the competitiveness of the UK's tax regime. The case against the rate was made in November by the Centre for Economics and Business Research. Its central point, taken from KPMG's global tax survey, is that the UK has the fourth highest top rate of tax in the OECD, which evidence suggests makes Britain less competitive.

But what the CEBR fails to mention from the same KPMG survey is that only Germany and the US have a higher threshold for the top rate of tax. (Of course, were the comparatively high 50p rate abolished, the UK's top rate of tax would take effect at £37,400 ($60,963) – around mid table).

The outcome of this is that the effective rate of tax on people earning $300,000 (£184,000), including social security, is 41.6 percent. This is the fifteenth highest of the 31 OECD countries and lower than the likes of the Netherlands, Ireland and Luxembourg – typically viewed as low tax regimes.

High net worth migration

The CEBR also claims that more people are considering moving out of the UK for the tax through two means.

First, it says there is "virtual migration"; individuals are using offshore accounts and then "crystalise" their earnings by living abroad for a year.


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