Restoring by the United Kingdom Government of Rate of Income Tax - Essay Example

Should the UK Government Restore the 50% Additional Rate of Income Tax? Table of Contents Introduction 3 Discussion 4 Elaboration of the Arguments 55 Addressing of the Assignment Question 7 Conclusion 8 References 9 Introduction UK, in the present scenario, is accounted as one of the superpowers of this globe. Correspondingly, it is also accounted with the highest tax paid nations as well. It is noteworthy in this context that the present global scenario has often been argued to demand lowering taxes by advanced nations, with the intention of facilitating hassle-free trade and business proceedings. However, the present taxation scenario within the UK appears to be completely opposite to that of the situational demand. The nation, in the present scenario, appears to have increased its taxation rates from 50%, which in turn has taken the shape of a debatable argument. From a general perspective, one can easily identify the motives of the UK government in terms of pumping out fund flow from the economy. Observing with an economic perspective, the tax hike initiative of the UK government can be categorized as a major deterrent factor that has slowed down the pace of functionality of this nation’s economy by a considerable extent (Young & Saltiel, 2011). UK citizens, in the present market economic scenario, are literally forced towards paying high rates of taxes whereas the lower income groups are made to pay marginal amounts. Considering all these aspects, the discussion will majorly focus towards answering the currently rising question regarding whether the UK government should restore the 50 per cent additional hike of income tax rates. Maintaining correspondence, the details regarding these aspects have been elaborated in the underneath sections. As mentioned above, the objective of this paper is to analyse the impacts of income tax hike on the overall trade practices and economic pace of development of the UK. Based on the findings generated thereupon, appropriate conclusions will be made constructed as to whether the UK government should bring down its present income tax levels to 50% as previous. Discussion History Associate with the Increased In the Income Tax Rates In contemporary macro-economic concepts, taxation is deemed as one of the fundamental tenets that holds significant influence on the stability and performance of any nation. It operates as a basic mechanism in the financial system of a country. The history behind imposing an additional 50% on the existing income tax rates can directly be linked with the hollow and un-rational mentality of the coalition government. The coalition government intended to impose a higher level of tax burden upon the richer income groups with the intention of attaining better revenue inflow along with stability in the overall wealth distribution process within economy. However, in alignment with the reports forecasted by the economic analysts, this attempt in the present economic scenario has rather inhibited economic development within the nation. Analysts’ views in this regard have asserted that the UK has pushed itself into a tax trap, whereas all of its neighbouring OCED nations have brought down their tax reigns (BBC, 2014). In fact, the coalition government and the labour party have entered into a state of political debate illustrating the positives and negatives of such tax rate increases. Improvement of such high levels of tax rates can also be considered as a strategic initiative undertaken by the political parties in winning the upcoming elections. A refractive of such political advantage can be attained from the statements made by the shadow chancellor regarding the chances of reverting to the increased percentage of tax rates, in case the labour party wins the upcoming elections of 2015 (Guardian News and Media Limited, 2014). Thus, by taking consideration of the historical events, one can easily perceive about the motives of the UK government for increasing the tax rates, which concentrate on attaining higher revenue through taxes charged on the richer groups of the country, wherein the thresholds also ensured that a larger mass remains liable for paying the same. Elaboration of the Arguments The implications of tax increase in the UK have been subjected to multiple positive and negative arguments, made by various economic analysts as well as politicians. In accordance to the analysts, bringing about increase in the UK tax rates might slow down the economic pace of this nation. In context to the trade perspectives, the economic analysts projected their opinion regarding the tediousness that international business processes are ought to face during their establishment within the domestic markets of the UK. In alignment with the debatable facts projected by the analysts, ‘Ed Balls’ of the UK labour party also supported the notion by projecting his intentions of bringing down the tax rates to the minimum possible levels (Crown, 2014). Similarly, the economic analysts also appear to have quoted regarding the occurrence of flat growth rate within the UK economy, because of the increased percentage of income tax rates. The economic projections made by KPMG also illustrate the deterioration identified within the economic state of the UK in comparison to that of the other neighbouring nations. Contextually, KPMG appears to have specific focus on the increasing rates of income tax within the UK as a comparative factor (Edwards, 2011). Justification to this context can be provided by taking consideration the fact that by bringing alignment within the upper and lower tax thresholds, the Labour party specifically intends putting major portion of the tax burden upon the high-income groups. This motive of the labour party sounds justified when safeguarding the interests of the lower income groups. However, it might also hamper the interests of the major business processes (Edwards, 2011). Thus, for attaining feasibility, it can be suggested that the UK government should restore back to its 50% additional rate on the income levels. A similar kind of reflection can also be attained from the statistical data regarding the concentration of high-income groups within just one present of the population, whereas the remaining population percentage specifically comprises the lower or middle-income groups in the UK (Merrick, 2014). Moreover, due to the destabilized pace of the economy, the income levels of the individuals, belonging from the lower and middle sections, have also declined in the recent past. Under such a situation, bringing down the lower point of the taxable threshold will eventually increase the burden upon the lower income groups while the higher income groups will enjoy an appreciable percentage of tax cut. Taking these as reference, one can suggest that by restoring the 50 % additional tax rate, the UK government will be able to increase its potentials of sufficing the increasing level of fiscal deficits within the nation (Merrick, 2014). Contradictorily, the ‘new Conservative-Liberal Democrat Government’ of the UK did not project its views upon the restoration of the 50% additional tax rate on basic income levels of the citizens. Rather, its intentions of increasing the percentage of personal allowances for the lower and middle-income groups, was triggered with the intention of providing them with minimal relief from the pressurizing tax rates. From a general perspective, analysis might refer to it as a positive intention of the government. However, an in-depth assessment of the matter shall indicate a contradictory view wherein such initiatives still project about the major intentions of the government in terms of holding on to the sources of attaining higher percentage of revenue from the richer groups within UK (House of Common Library, 2014). Addressing of the Assignment Question The current notion of the debate emphasizes whether the UK government should restore its 50% additional rate on income tax. The above discussion illustrates about the positive and negative arguments, as projected by the UK political parties, with the intention of attaining greater amount of population response. However, if seen from a logical perspective, it can be stated that the UK government should restore its 50 per cent additional rate on income tax. Justification to this aspect can be provided by taking consideration the fact that restoration of 50% of the additional rate will increase the lower tax threshold, depending upon which, the lower and middle-income groups were charged (Crownb, 2014). Eventually, this would increase the tax percentage of personal allowances and help in mitigating the prevailing fiscal deficits within the nation. In addition, increasing the lower tax threshold for the lower and middle-income groups will also facilitate the growth of small and medium scale business processes that will prove to be a supportive unit for stabilizing the state of the UK economy in the long run. Moreover, lowering of certain portion of the upper level taxable threshold will also release appreciable amount of pressure off the higher income groups. In a cause and effect relation, such impact will gradually ease up business establishments and functionality processes within the domestic markets of the UK and will help in attracting multiple other international business processes (Donnell, 2014). The positive impact of restoring the previous 50% additional increase on the income tax rates can be majorly observed with the increased growth rates of the small and medium scale business organizations. The beneficial aspect can be elaborated based on the fact that small and medium scale entrepreneurship business did contribute appreciable amounts of support to the UK economy during its subjection to 2009 economic recessions. Thus, pressuring them in the present market scenario through high taxable thresholds does not appear to be a beneficial aspect. The statements made by the Labour Party and the economic analysts find high alignment with the provided facts as to why the UK government should restore its old taxation slabs rather than remaining confined to the new rates. Hence, holding on the notion of restoring the 50% additional rate on income tax appears justified (Redwood, 2013). Conclusion The above discussion has been highly effective on elaborating the reasons as to why the UK government should restore the 50% additional rate on the income tax. Throughout the discussion, facts have been provided regarding the possible fiscal and economic consequences that the present UK government might incur, in case it remains confined to the currently followed tax slabs. Specific levels of preferences have also been provided on how the political parties have been utilizing this initiative as a form of endorsement, with the intention of attaining the voter’s support. However, their viewpoints also appears logical regarding the implications of the major portion of income tax burden, upon the higher income groups rather than pressuring the lower and middle income groups with high tax rates. Conclusively, elaboration of the factors resulting in increasing the economic risk levels because of high tax rate imposition has been provided in multiple sections of the discussion. Taking all these into reference, it is worth mentioning that the government’s judgment regarding restoration of the previous 50% additional rate on income tax is worth appreciating and would support the generation of higher level of financial profitability in comparisons to that of the currently implemented tax rates. References BBC, 2014. Q&A: Return of the 50p Top Rate of Income Tax? News Business. [Online] Available at: http://www.bbc.com/news/business-25895480 [Accessed November 30, 2014]. Donnell, O. S., 2014. Balls Vows to Restore 50% Tax, Cut Ministers’ Pay. Bloomberg News. [Online] Available at: http://www.businessweek.com/news/2014-09-21/balls-vows-to-restore-50-percent-tax-cut-ministers-pay [Accessed November 30, 2014]. Crown, 2014. Tax and Tax Credit Rates and Thresholds for 2014-15. HM Treasury. [Online] Available at: https://www.gov.uk/government/organisations/hm-treasury [Accessed November 30, 2014]. Crownb, 2014. Income Tax Rates, Rate Limits and Personal Allowances for 2011-12. General Description of the Measure, pp.1-8. Edwards, J., 2011. Finance Bill Debate – Increase the Top Rate of Income Tax. Home. [Online] Available at: http://www.jonathanedwards.org.uk/finance-bill-debate-increase-the-top-rate-of-income-tax?lang=en [Accessed November 30, 2014]. House of Common Library, 2014. Income Tax: The Additional 50p Rate. Standard Note: SN249, pp. 1-43. Guardian News and Media Limited, 2014. Labour Will Restore 50p Top Rate of Income Tax, Says Ed Balls. News. [Online] Available at: http://www.theguardian.com/politics/2014/jan/25/labour-50p-top-rate-income-tax-ed-balls [Accessed November 30, 2014]. Merrick, J., 2014. Labour Will Bring Back 50p Income Tax For Top Earners Says Ed Balls. News. [Online] Available at: http://www.independent.co.uk/news/uk/politics/labour-will-bring-back-50p-income-tax-for-top-earners-says-ed-balls-9084983.html [Accessed November 30, 2014]. Redwood, J., 2013. The 50p Tax Rate. Home. [Online] Available at: http://johnredwoodsdiary.com/2013/04/07/the-50p-tax-rate-2/ [Accessed November 30, 2014]. Young, P., & Saltiel, M., 2011. The Revenue and Growth Effects of Britain’s High Personal Taxes. Introduction, pp. 1-32. Read More