How ‘insignificant’ really is 50p tax revenue?

So did the 50p rate of tax - introduced by Alistair Darling in 2009 - really raise a "statistically insignificant" sum, as the Independent's editorial put it?

George Osborne got rid of the 50p top rate of tax in 2012 after claiming it ‘only’ raised £1bn.

Similar claims – that the 50p rate brings in “insignificant” revenue – have been doing the rounds today, as Ed Balls’s announcement that under a Labour government he would bring back the 50p rate has started to sink in.

City AM’s Allister Heath described the policy as a “war on the better off” that would “reduce the amount of money raised over time by HMRC”.

Mayor of London Boris Johnson has also chimed in, claiming in today’s Telegraph that “By taking it down to 45p, George Osborne has produced more tax revenue.”

So did the 50p rate of tax – introduced by Alistair Darling in 2009 – really raise a “statistically insignificant” sum, as the Independent’s editorial put it?

Hardly.

According to HMRC, the 50p rate raised an extra £10bn. But let us say, for the sake of argument, that it only raised the £1bn claimed by George Osborne. Even then, the 50p rate still raised significantly more than a number of other coalition policies – policies which have hit some of the most vulnerable members of society.

It’s a telling sign of where the coalition’s priorities lie that it is willing to raise far smaller sums in the following ways, rather than tax the rich an extra five pence in the pound on earnings above £150,000.

Cuts to legal aid – expected saving: £350m

The government is hoping to save £350m from the legal aid budget, with a focus on recouping most of the savings from civil legal aid. The legal aid bill has seen substantial areas of law cut from the scope of legal aid, including help with welfare benefits, employment and immigration. Around 650,000 people are expected to lose access to legal aid under government plans.

The Bedroom Tax – expected saving: £465m

The Bedroom Tax, which came in on 1 April 2013 as part of the 2012 Welfare Reform Act, charges people in social housing based on how many spare rooms they have. Benefits will be reduced by 14 per cent for one room and 25 per cent for two or more bedrooms. On average, an individual affected by the Bedroom Tax will lose £14-£25 a week.

Replacement of disability living allowance with personal independence payments – expected saving: £1bn

By 2016 the replacement of the disability living allowance with personal independence payments is expected to save an estimated £1bn a year as around half a million disabled people have their claim removed. Disabled charity Scope has claimed that, as a result of the changes, “thousands of people could be left with the  wrong levels of support and in some cases no support at all”.

6 Responses to “How ‘insignificant’ really is 50p tax revenue?”

  1. James

    There are two main criticisms of the higher tax rate: 1) It will crowd out investment 2) the rich simply won’t pay it due to clever accounting. First of all, the whole reason we have a recession is because business isn’t investing, and is instead hoarding cash because confidence is so low. A higher tax rate certainly won’t crowd out investment that isn’t happening. The revenue would ideally be used to generate demand and confidence through infrastructure spending rather than paying down the deficit, but sadly that’s not the political reality. Finally, if the rich will simply use clever accounting to avoid paying the higher rate, then why all the fuss? In truth, the higher tax rate will be reasonably effective in gathering revenue, it won’t hit investment but it will hit the stockpiles of cash hoarded by industry, hence the toys being thrown from the pram.

  2. josh owen morris

    Raising the rate of income tax won’t hurt private investment one bit. It’s take home pay, not profits to be reinvested in a company. It will however, give opportunity for greater public investment.

  3. swatnan

    It won’t affect the really filty rich all that much, they’ll simply write it off or cut down slightly on the bollinger. And the £10bn is a small dro in the ocean.

  4. robertcp

    I agree that it is a fuss about nothing for the rich but £10 billion is a lot of money when the deficit is currently about 100 billion.

  5. robertcp

    As you say, one billion from the rich paying a little bit more tax is better than just about any other way of raising that much money.

  6. treborc1

    Well the bedroom tax 46 labour MP’s did not vote and some did not even care enough to turn up including that idiot Brown.

    If the 50p tax was so important and important enough for the country why was it not done by labour in 2008, Brown only upped the tax to 45p and then four weeks before an election he put it up to 50p as a trap for the Tories. And what did Ball’s say on TV it would not be to long before it was dropped, so it’s the same old Labour party. just jumping on band wagons.

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