Tax hike a necessary evil or "raid on rich?"

By Olesya Dmitracova

LONDON (Reuters) - A new 50 percent income tax rate for highest earning Britons could raise money without hitting the pockets of most people but risks prompting an exodus of businesses.

Chancellor Alistair Darling on Wednesday said people earning more than 150,000 pounds a year -- the top 1 percent of taxpayers -- will pay 50 percent tax from next April, up from the current 40 percent.

"If you are going to raise (money) in a way that's going to cause least flak from the country at large, then this is probably a good way of doing it," said Michael Devereux, professor of business taxation at Oxford University.

"He clearly had to do something."

Lisa Harker from the Institute of Public Policy Research, an independent think-tank, said "it is only fair that higher earners ... should pay more, rather than the less well-off."

But others feared it will damage London's competitiveness.

"It is essential that we keep a continuous eye on changes in other centres to make sure that we do not put ourselves at any disadvantage," said Stuart Fraser, policy chairman of the City of London Corporation, which governs the financial district.

Chas Roy-Chowdhury, head of taxation at the Association of Chartered Certified Accountants, said the tax rise could "blunt" the government's fiscal stimulus by discouraging spending.