Yield from 50% tax rate 'will be effectively nil'

High-earning contractors have been told that the government's 50 per cent tax rate is likely to be largely ineffective.

Chancellor Alistair Darling revealed the new rate for those earning more than £150,000 per year in his Pre-Budget Report.

But John Whiting, tax policy director for the Chartered Institute of Taxation, questioned the government's logic behind implementing the new measure.

Citing the Institute for Fiscal Studies, Mr Whiting said that the yield which will be generated by the higher tax rate will be "effectively nil" and will do little to close the UK's fiscal deficit.

He pointed out that many high-earning contractors will look to avoid the hike by moving income into the current tax year or deferring it, on the basis that the 50 per cent rate will not last forever.

"Others will be contemplating moving abroad or not coming to the UK in the first place," Mr Whiting added.

His thoughts were echoed earlier this week by Lord Myners, who said that the Treasury has lowered the anticipated amount that it will earn from the new rate due to the avoidance measures employed by many high earners.

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