The UK government punishes high earners with a 50% tax rate.

People earning over £150,000 a year will be stung from today (6 April) as a new 50% tax rate comes into effect with analysts predicting a mass exodus of some of the nation’s highest earners.

The Institute of Directors (IoD) has condemned the move, which was announced by Chancellor Alistair Darling in the 2009 Budget, to raise taxes on those earning £150,000 or more from 40% to 50%. The change looks set to affect more than 350,000 people in the UK.

Darling said that the tax hike would provide the government with revenue of more than £1,130 million in 2010/11 and £1,180m in 2011/12, and the government readily admits it needs as many revenue-raising resources as it can in an effort to reduce the UK’s deficit.

Richard Baron, Head of Taxation at the IoD argues that the idea that the higher tax rate will be a substantial revenue-raiser is a misnomer. He said: “The superficial attraction of 50p rate is that it will yield some new revenue from higher earners which can be used to tackle the fiscal deficit.

“But once we dig deeper, we can see the policy is foolish. It will not help the people one would expect on lower incomes, but will create a further deterrent to new international capital coming to the UK, thereby impoverishing all of us indirectly over time.”

The IoD predicts that the tax hike will have no immediate impact and will in fact reduce overall tax revenues in the medium to long term as directors of multinational corporations look to move their headquarters abroad to enjoy better tax breaks.

As the UK becomes a ‘high tax country’ high earners are likely to be deterred from setting up base here, and some reports suggest that the UK’s sports industry may suffer as high paid sports people stay away in order to pay less tax.

Director-General of the IoD, Miles Templeman, commented: “With public finances likely to remain poor for some years and the UK’s tax competitiveness already in decline, this highly political measure cannot be justified.”

Earlier this month, cabinet sources told the Daily Mail that Schools Secretary Ed Balls and his wife Work and Pensions Secretary Yvette Copper were leading a Cabinet charge to double the number of people hit by the tax hike. Rumours abound that the MPs want to reduce the earnings threshold to £100,000 which would mean even GPs and top-earning head teachers would be affected.