Britain's Tax-Bracket Backlash

Prime Minister Gordon Brown has created a 50 percent tax bracket for the country's highest earners, those who earn more than about $220,000 a year.
Prime Minister Gordon Brown has created a 50 percent tax bracket for the country's highest earners, those who earn more than about $220,000 a year. (By Musadeq Sadeq -- Associated Press)
By Kevin Sullivan
Washington Post Foreign Service
Tuesday, April 28, 2009

LONDON, April 27 -- Composer Andrew Lloyd Webber called it "the final nail in the coffin" for the British economy. Actor Michael Caine threatened to move to the United States because of it, and one of Britain's top soccer coaches said it could undermine the national sport.

Prime Minister Gordon Brown's creation of a 50 percent tax bracket for the nation's highest earners has led to a backlash from green rooms to boardrooms across Britain.

Critics say the measure, which targets those who earn more than about $220,000 a year, will create a brain drain and a new era of class warfare, undermining entrepreneurial spirit when it is most needed, while doing little to rescue the nation's wheezing economy.

"The next few years are going to be horrendous in the U.K.," Lloyd Webber, who created "Evita," "Cats" and "The Phantom of the Opera," wrote in the Mail on Sunday. "The last thing we need is a Somali pirate-style raid on the few wealth creators who still dare to navigate Britain's gale-force waters."

The trouble for Lloyd Webber (whose wealth is estimated at $1.1 billion in the Sunday Times Rich List) and other well-heeled critics is that the tax increase is popular. A YouGov-Daily Telegraph poll found that 68 percent of Britons supported it, and a Populus poll in the Times newspaper found 57 percent in favor. The polls seem to reflect the nation's popular anger at bankers, financiers and the wealthy in general as thousands of people lose jobs and homes amid the worst economic crisis in decades.

While Lloyd Webber urged the public "not to confuse overpaid bankers with the rest of Britain's entrepreneurs," the poll results suggest that most Britons don't draw such a fine distinction.

"A majority of people have come to resent the growing inequality and the very high rewards earned by people who don't always appear to have earned them," said Anthony King, a professor of government at the University of Essex.

King said he had no idea whether high-earners would leave Britain. But if the wealthy are basing their decision on whether to live in the country purely on taxation, he said, "people will start to wonder, 'Who are these people, anyway?' "

While the rich-tax has grabbed headlines, it involves far smaller amounts of money than other items in the budget that Brown's government unveiled last week -- especially plans to borrow more than $1 trillion in the next five years, taking public debt to 79 percent of gross domestic product by 2013.

Britain's Treasury estimates that raising the top tax rate to 50 percent, from the current 40 percent, will generate about $3.5 billion a year when it takes effect next year. It will affect about 300,000 people, just under 1 percent of the country's nearly 31 million taxpayers.

"It's one relatively minor source of additional revenue," said Richard Portes, professor of economics at the London Business School. "It's not going to have huge effects on take-home income, but it's not trivial and will do something to narrow the income gap."

But those who will pay the higher tax argue that it is a significant deterrent for an entire generation of entrepreneurs who have grown up paying no more than 40 percent of their income in taxes. Britain had a top rate of 83 percent in the late 1970s and a top rate of 60 percent until 1988, when the rates were slashed and simplified.

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