Compass, the left-leaning UK thinktank, has released a controversial set of proposals for further tax increases on the country’s wealthiest, in addition to moves by the current government to introduce a higher income tax rate on top earners from next April.

Headline changes to the tax burden of those earning £100,000 and above include: uncapped national insurance of 11 per cent, a minimum 40 per cent and 50 per cent tax on investment income of over £100,000 and £150,000 respectively, retention of the 50 per cent income tax and the removal of offshore tax benefits. In all, the report claims the proposals would cut the income of the UK’s top 10 per cent of earners by 12.6 per cent.

However, while the authors of the report believe these measures would increase tax revenue by £27 billion a year, an independent report by the Institute for Fiscal Studies published in April this year claims that taxes exceeding 40 per cent tend to generate negligible increases in revenue.

“The government’s proposed tax rate of 45 per cent could raise ‘approximately nothing',” states the IFS report, authored by Mike Brewer and James Browne.

“There is considerable uncertainty over the revenue that could be raised from the very rich…because of uncertainty over the precise nature of the response of the very rich and which tax revenues would be affected,” concluded the report.

An argument that has been raised against raising the upper level of taxation is that wealthy individuals are more likely to cut their earnings, take tax avoidance measures or leave the country rather than surrender large portions of income - a phenomenon referred to by the IFS known as ‘taxable income elasticity’. 

Other groups, such as the Taxpayers' Alliance, a UK organisation, argue that high marginal tax rates in fact reduce, not raise, revenues, with the rich actually paying a smaller proportion of all revenues than is the case under a flatter, lower tax code. It points out that advocates of raising taxes ignore the dynamic revenue effects of incentives.