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Alistair Darling was told two-thirds 'will dodge' new 50p top tax rate

April 26, 2009 12:01 AM
By Patrick Hennessy, Mark Kleinman and Melissa Kite in The Telegraph

Gordon Brown and Alistair Darling imposed the controversial new 50p top rate of tax on higher earners despite an official Treasury prediction that more than two-thirds of people earning more than £150,000 would not pay it.

A pre-Budget "modelling" exercise conducted by the Treasury forecast that 69 per cent of those hit by the new levy - to come in next year - would find ways of avoiding it. Yet ministers pressed ahead with the measure anyway.

Senior Tories said that the revelation was final proof that the introduction of the 50p tax was purely "spiteful politics" and a tax on the rich, and not simply a "necessary" revenue-raising measure as ministers had claimed.

A Treasury source admitted it was clear a large majority of wealthy individuals would make use of a wide range of schemes which would prevent them falling into the new 50p top rate. It is designed to bring in £2.4 billion a year by 2012-13.

He said: "Our estimates suggest that 69 per cent of those affected by the new 50p rate will avoid or evade paying at least some of the tax."

The 50p tax rate is attacked today by two of Mr Brown's business ambassadors - Lord Jones and Sir Richard Branson - who were appointed to promote Britain overseas. They told this paper that the 50p rate was borne out of a "thirst for revenge" - comments which are certain to be embarrassing for the Prime Minister.

Renewed doubt has also been placed on Mr Darling's figures for future economic growth.

The Sunday Telegraph has established that the Chancellor's growth forecasts for the years following 2011 have been sharply contradicted by the International Monetary Fund (IMF).

The Treasury predicts Britain's economy will grow by an impressive 3.5 per cent in 2011 as the recovery gathers pace. However, the IMF's figure is much lower at 2.1 per cent. In 2012 the Treasury thinks growth in Britain will again be 3.5 per cent while the IMF forecasts 2.9 per cent.

If the IMF is right Mr Darling's already sky-high figures for government borrowing over the next few years might rise even higher - putting Britain's public finances seriously at risk of collapse.

As the Budget "numbers" unravelled, Mr Brown faced the first clear evidence of disquiet about the 50p tax rate from former supporters of Tony Blair, both inside and outside the Government.

One Cabinet minister said: "I'm very uncomfortable with this as New Labour," although the minister also admitted the move was "necessary."

It was revealed yesterday that the former prime minister, Tony Blair, believed the new top 50p tax rate was a "terrible mistake".

Sir Richard, the chairman of Virgin Group, added to the criticism.

"In a very mobile world - where talent can move countries easily - we need to ensure we do not put off the business-builders from setting up in the UK," he said.

Lord Jones, the former director general of the Confederation of British Industry (CBI), said: "The conduct, the arrogance and the hubris of the few has caused this thirst for revenge, but this tax rise impacts nearly one million people, the vast majority of whom are suffering like everyone else. The sins of the few are being visited on the many."

The revelations that the Treasury believes 69 per cent of those affected by the new tax will find ways of dodging it now threatens to embroil Mr Brown and Mr Darling in a further damaging row.

John Redwood, chair of the Tories' economic competitiveness commission, said: "It just shows that these people are playing spiteful politics instead of trying to manage the country properly. The Sunday Telegraph has blown the cover on a clear political stunt.

"This is a political device that Labour thought would cause the Tories problems but it is going to cause them endless problems."

In a speech to the Conservative spring conference in Cheltenham today David Cameron will signal deep cuts in public spending if his party is elected.

"The age of irresponsibility is giving way to the age of austerity. We are in the deepest recession since the war. We have the highest borrowing in history. Labour are spent," Mr Cameron will tell his party.

"The money has run out. Unless we deal with this debt crisis, we risk becoming the sick man of Europe again. Our recovery will be held back and our children will be weighed down by a millstone of debt. There is only one way out of this mess and that is through massive change. I'm frustrated it's not happening. I'm impatient to get on with it."

The Treasury said it would not comment on the modelling it used to work out how much revenue tax changes would generate.

However, a spokesman said: "We continue to tackle tax avoidance and evasion. We have a programme of measures to make sure people continue to pay their fair share."