More than 500 business leaders have called for the 50p top rate of tax to be scrapped in next month's Budget.

In a letter to the Daily Telegraph, they said it was reducing government income and damaging the economy.

The entrepreneurs accused Chancellor George Osborne of putting "populist politics before sound economics".

Mr Osborne has said the 50p rate is a temporary measure and has asked officials to assess how much extra revenue it actually brings in.

There is speculation that wealthy tax payers find ways of avoiding it.

'Awkward position'

The letter, from the owners of 537 small and medium-sized businesses, said: "Given the current state of the UK economy, we urge the chancellor to urgently consider scrapping the top rate of tax in his forthcoming Budget.

"The tax, which is in effect a 58p tax after national insurance is taken into account, puts wealth creators like us in a very awkward position.

"We believe the richest should help the poorest in society. 1% of taxpayers are forecast to contribute nearly 24% of income taxes.

"But penalising high earners through an unfair, politically-motivated tax puts populist politics before sound economics."

The letter adds: "The result is that the 50p tax is set to reduce government income and damage the economy, the public services and charitable giving."

Tricky decision

One of the signatories, Tony Stein, director at Canterbury Care, said the rate was a disincentive to job creation.

He said: "Times are hard and reducing the resources available to entrepreneurs to reinvest in new business is the wrong outcome for the country."

Business leaders are funding a campaign against the tax rate of 50p in the pound.

Last September, the campaign organised a letter signed by a group of leading economists.

BBC chief economics correspondent Hugh Pym says the decision of when to end the 50p rate will be tricky.

Some people argue that when there is a public sector pay freeze it is wrong to be helping the richest in society.

'No timetable'

Shadow chief secretary to the Treasury, Rachel Reeves, said now was not the time to do away with the 50p rate.

"When millions of families and pensioners on middle and low incomes are being squeezed by the VAT rise and cuts to tax credits, cutting taxes only for the richest 1% cannot be the right priority now," she said.

"But these business owners are right to call on the government to take action to stimulate growth and jobs in our economy.

"That's why Labour is calling on the chancellor to use the almost £1bn unspent from his failed national insurance holiday to give a tax break to all small firms taking on extra workers."

The rate, introduced by Labour, is levied on earnings above £150,000 a year.

A Treasury spokesman said: "We have said we regard 50p as temporary and have asked HMRC to report on its effectiveness. We have not set out a timetable for any change in policy."

Sir Martin Sorrell, chief executive of the global advertising firm WPP, told BBC Radio 4's Today programme: "The government is trying to reduce the rate of increase in spending, or even cut spending, and in these circumstances it's understandable that taxes would be at higher levels than in more normal circumstances.

"Having said that, if you asked my personal view, I would like to see the tax rate lower."