Brain drain fears as economy takes a dip

Mike Lazenby, chief executive of Kent Building Society
Mike Lazenby, chief executive of Kent Building Society

The UK economy has fallen back by 1.9 per cent amid warnings that the new 50p tax rate on high earners could spark another brain drain.

As figures published today showed GDP dipping further in the first quarter of the year - on top of a 1.6 per cent decline in the previous quarter - there was mounting concern that the very people who could help reverse the trend might leave the country.

There are also fears that the new 50 per cent top tax rate on people earning more than £150,000 could deter entrepreneurs from developing their ideas in the UK.

While early polls suggest the public backs higher tax rates for the rich, especially in the wake of the banking crisis blamed partly on the culture of huge salaries and bonuses, the hike represents a U-turn by the Labour Government which had previously promised not to raise income tax.

Mike Lazenby, chief executive of Kent Building Society, will be hit by the new rate, which comes into force in April.

He said: "Quality people who can will go somewhere else and avoid paying the new tax rate. We need innovators, captains of industry to be here to drive the economy forward. If they are all going somewhere else, they are effectively getting into the lifeboat while the Chancellor continues to paint the ship."

Harley Richards, head of people services at KPMG, Gatwick, covering Kent, said that from next year, the UK would have the highest income tax rate among the largest western economies.

"If they are losing half of their top end earnings, entrepreneurs, foreign workers and anyone else who can choose where they work are likely to think twice before making the UK their base," he said. "Indeed, instant post-Budget reaction already indicates that many high earners will be wondering whether to leave these shores."

But Ian Pearson, Economic Secretary to the Treasury, defended the increase. He said: "We believe it’s the right thing to do, that people who are on good incomes and can afford to pay a bit more actually do so when we have these tough economic times. Increasing the rate to 50 per cent is a judgement we made. We’re talking about one and a half or two per cent of the population. About 230,000 people might be affected."

Budgets were about making difficult choices, he added. "We believe that introducing a tax rate of 50p in the pound for those earning over £150,000 is the right decision to take, given the economic climate we are facing."

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