A tax that stalls the engines of recovery Small and medium-sized businesses are the mainstay of the British economy. According to the Department for Business, Innovation and Skills, they account for 99.9 per cent of private sector enterprises, 58.8 per cent of all jobs and 48.8 per cent of private sector turnover. When they speak, it is important that government listens. In a letter published on this page today, the people owning or running more than 500 of these companies argue for the removal of the 50p top rate of tax. They argue that the levy - foisted on this Government in an act of political vindictiveness by Gordon Brown - puts populist politics before sound economics. They say it will reduce, not increase, tax revenues and inhibit the recovery. They are right. It is a punitive measure that blunts aspiration and undermines the incentive for such companies - the engines of recovery - to expand. David Cameron and George Osborne both know this to be the case, yet appear unwilling to risk the political flak that would be generated by repeal. Cutting taxes for the better off at a difficult time for the economy is never going to be a vote-winner. While the Prime Minister recently insisted that the 50p rate remains temporary, Downing Street believes it is not feasible to scrap it before the next election, not least because the public sector pay freeze has, in effect, been extended until then. In the meantime, the Government is sheltering behind the assessment being conducted by Her Majesty's Revenue and Customs into the fiscal impact of the 50p rate. The outcome of this should be made available in the Budget later this month, but an early indication came from January's self-assessment tax returns, which are completed by higher-rate taxpayers - they amounted to £500 million less than in the same month last year. This suggests that the original claim that the new top rate would produce at least £2.5 billion in additional revenue was wildly optimistic. A full picture of the impact of any new tax can take several years to emerge, but this levy is unlikely to prove a revenue-raiser. The unenviable politics of the matter are intensified by Liberal Democrat breast-beating. While the 50p rate is not specifically mentioned in the Coalition Agreement, it does say that tax cuts for the lower paid should take priority. The end result is that this temporary measure is beginning to look permanent, to the lasting detriment of the UK economy. Taken with yesterday's tactical retreat over workfare and Tuesday's admission in Cabinet that the deregulation drive has stalled, it does not augur well for the country's growth prospects.