Top tax rate will raise £12.6bn more in revenue, official figures reveal

Government’s own projections favour 50p tax rate for highest earners as pressure mounts on George Osborne to scrap it The 50p tax rate will raise an additional £12.6bn over the next five years even if people choose to leave the country to avoid it, according to the government’s own projections which will add to pressure on the Treasury not to scrap higher taxes. By 2015-16 the 50% tax rate for people earning above £150,000 will bring in £3.2bn more than if the tax rate had stayed at 40% – rising from £1.1bn this year and totalling £12.6bn over the five year period. Compared with a 45% rate, 50% will bring in an additional £5.3bn. The figures, contained in the government projections from last November and revealed in a parliamentary question tabled by the Conservative peer Lord Ashcroft, emerge as Osborne is coming under pressure from the City and economists to remove the 50p rate. In a letter to the Financial Times on Wednesday, 20 leading economists, including two former members of the Bank of England’s monetary policy committee called for the top rate of tax to be removed claiming it was damaging growth and failing to generate significant revenues. The chancellor is believed to be reconsidering the higher tax band and has asked the HMRC to evaluate its impact after the self-assesment deadline for its first year, in January. It should report in time for the budget. Osborne has previously said that “there’s not much point in having taxes that are economically inefficient”. New figures have emerged amid calls from Labour for the government to commission independent research into impact of the higher tax band and signals from the Lib Dems that they would oppose the scrapping of the 50p rate. Ed Balls, the shadow chancellor, said: “If the Chancellor really wants to know how effective the top rate of tax is he should immediately ask the Office for Budget Responsibility, not just HMRC, to produce a report genuinely independent of government.” Lord Oakeshott, the Lib Dem peer and close ally of Vince Cable, said: “This gives the lie to the special pleading form the super rich and the Tory right for a hand out to the top 1% of taxpayers. This official treasury estimate, including possible behavioural reactions, shows the 50p top tax rate raising £12.6bn over five years. Warren Buffet in America and business leaders in France and Germany are calling for shared sacrifice – why are Britain’s super rich so super selfish?” The Treasury prediction takes into account the fact that people could opt to maximise their pension contributions, form a company or even leave the country to avoid paying extra tax. However, the Institute for Fiscal Studies is poised to publish a paper suggesting that the impact of the 50p tax rate on the highest paid could trigger people to adapt to avoid paying the extra tax to the extent that it could even cost the country money. In its Mirrlees Review, to be published next week, it reports: “It is not clear whether the 50% rate will raise any revenue at all. There are numerous ways in which people might reduce their taxable incomes in response to higher tax rates; at some point, increasing tax rates starts to cost money instead of raising it.” The IFS paper suggests that anything above the original highest rate of 40% would prompt people to find ways to avoid paying it. However, deputy director Carl Emmerson stressed that their figures were passed on data from the 1980s that have a high degree of uncertainty. ” Even in 10 years time I don’t think there will be a definitive answer to what tax revenues in, say, 2010-11 would have been had the top rate of tax been 40p not 50p.” A Treasury spokesman confirmed that the chancellor has asked for an analysis of the revenue raised by the top tax rate. “The government is committed to a competitive tax system, but in reducing the deficit, we have always been clear that those with the broadest shoulders should carry the greatest burden.” Economic policy Economics Tax and spending Tax Income tax George Osborne Tax avoidance Polly Curtis guardian.co.uk

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