The truth behind the Mail’s warning that 50p tax will cost £350bn

The Daily Mail this morning reported that "Labour's 50p tax rate 'could cost the country £350bn', Osborne warned". The claim was calculated on the back of a fag packet.

The Daily Mail this morning published the surprising news that “Labour’s 50p tax rate ‘could cost the country £350bn’, Osborne warned“. The number, if it were true, would be eye watering. Readers can decide for themselves whether it’s worth more than the fag packet on which it was calculated.

The source of the story is the Adam Smith Institute who have put together a short report titled ‘The Revenue and Growth Effects of Britain’s High Personal Taxes‘. The report concludes:

“At a minimum, the policy risks flat growth for a decade, and a possible recession at the end of the period. The net effect upon government finances, adverse from the outset, gets worse from year to year and ends up with net losses of some £350bn after ten years. In the worst-­‐case scenario, approximately £640bn of revenue would be forgone.”

The Mail made no mention of the fact that the £350bn would be spread over 10 years but, even so, £35bn is a huge number. The Adam Smith Institute get this number and their claim about “flat growth” from projections over how many individuals will leave Britain as a result of the tax regime. As the table below shows, the survey of “tax advisers” found that at a minimum, 25% of personal taxpayers and 15% of corporate taxpayers are considering leaving the UK.

From their survey of “several dozen” tax advisers (I’m told by author, Miles Saltiel) and assumptions about migration and recruitment, which are not disclosed in the report, the authors extrapolate that at least 17% and up to 31% of higher rate taxpayers working in London’s financial services sector will leave the country. In other words up to a third of all those working in the City and earning above £150,00 will have left the UK by 2016.

Saltiel told me that his calculations were “a lot better than a wet finger in the air” and that although he was “pretty comfortable” with the conclusions, there were not enough survey respondants “to do a statistical thing”. Statistical things aside, readers will no doubt remember similar claims by Paul Daniels and Frank Bruno after the 1997 election.

The
increase
in
the
top
tax
rate
may
prove
disastrous
for
revenue
raising.
At
a
minimum,
the
policy
risks
flat
growth
for
a
decade,
and
a
possible
recession
at
the
end
of
the
period.
The
net
effect
upon
government
finances,
adverse
from
the
outset,
gets
worse
from
year
to
year
and
ends
up
with
net
losses
of
some
£350bn
after
ten
years.
In
the
worst-­‐case
scenario,
approximately
£640bn
of
revenue
would
be
forgone.
The
UK
simply
cannot
afford
such
an
ill-­‐judged
policy.
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27 Responses to “The truth behind the Mail’s warning that 50p tax will cost £350bn”

  1. Deb

    RT @leftfootfwd: The truth behind the Mail's warning that 50p tax will cost £350bn http://bit.ly/ebOV2L by @wdjstraw

  2. UniteYou

    RT @leftfootfwd: The truth behind the Mail's warning that 50p tax will cost £350bn http://bit.ly/ebOV2L by @wdjstraw

  3. False Economy

    RT @leftfootfwd The truth behind the Mail's warning that 50p tax will cost £350bn http://bit.ly/ebOV2L by @wdjstraw

  4. David Nash

    RT @leftfootfwd: The truth behind the Mail's warning that 50p tax will cost £350bn http://bit.ly/ebOV2L by @wdjstraw

  5. Other TaxPayers Alli

    RT @leftfootfwd: The truth behind the Mail's warning that 50p tax will cost £350bn http://bit.ly/ebOV2L by @wdjstraw

  6. Brummie Protestor

    RT @FalseEcon: RT @leftfootfwd The truth behind the Mail's warning that 50p tax will cost £350bn http://bit.ly/ebOV2L by @wdjstraw

  7. John Turner

    RT @OtherTPA: RT @leftfootfwd: The truth behind the Mail's warning that 50p tax will cost £350bn http://bit.ly/ebOV2L by @wdjstraw

  8. John Turner

    RT @FalseEcon: RT @leftfootfwd The truth behind the Mail's warning that 50p tax will cost £350bn http://bit.ly/ebOV2L by @wdjstraw

  9. Geoffrey Pearson

    RT @leftfootfwd: The truth behind the Mail's warning that 50p tax will cost £350bn http://bit.ly/ebOV2L by @wdjstraw

  10. JamieSW

    RT @OtherTPA: RT @leftfootfwd: The truth behind the Mail's warning that 50p tax will cost £350bn http://bit.ly/ebOV2L by @wdjstraw

  11. Kerry Abel

    RT @FalseEcon: RT @leftfootfwd The truth behind the Mail's warning that 50p tax will cost £350bn http://bit.ly/ebOV2L by @wdjstraw

  12. Anthony Zacharzewski

    Also worth checking out Chris Dillow’s piece on it at: http://stumblingandmumbling.typepad.com/

    Summary: they ignore all research that doesn’t agree with their predetermined position.

  13. Kelvin John Edge

    RT @FalseEcon: RT @leftfootfwd The truth behind the Mail's warning that 50p tax will cost £350bn http://bit.ly/ebOV2L by @wdjstraw

  14. Paul Evans

    One for @timharford I think? http://bit.ly/hCtZku

  15. David Taylor

    RT @leftfootfwd: The truth behind the Mail's warning that 50p tax will cost £350bn http://bit.ly/ebOV2L by @wdjstraw

  16. Kevin Richards

    Another fictitious story from the Mail @ leftfootfwd: The truth behind the Mail's warning that 50p tax will cost £350bn http://bit.ly/gWvVGU

  17. Steve Trow

    RT @leftfootfwd: The truth behind the Mail's warning that 50p tax will cost £350bn http://bit.ly/ebOV2L by @wdjstraw

  18. Louise King

    RT @leftfootfwd: The truth behind the Mail's warning that 50p tax will cost £350bn http://bit.ly/ebOV2L by @wdjstraw

  19. Staffordshire UNISON

    RT @FalseEcon: RT @leftfootfwd The truth behind the Mail's warning that 50p tax will cost £350bn http://bit.ly/ebOV2L by @wdjstraw

  20. Steven Dobbs

    RT @OtherTPA: RT @leftfootfwd: The truth behind the Mail's warning that 50p tax will cost £350bn http://bit.ly/ebOV2L by @wdjstraw

  21. Mr. Sensible

    Sounds familiar…

    Anyway, the government’s austerity program isn’t exactly encouraging the economy to grow like an express train is it…

  22. Jon Purdom

    The loss to Britain of corporations and high earners who don’t want to pay their fair share to the treasury (or often nothing at all) is something that I can live with.

    Our tax rates are not excessive among the G20 nations. If these entrepreneurs that believe they contribute so much to our nation want to go and try their luck in the developing world at lower tax rates, good luck to them. But almost all of them are bluffing so that the government will let them get away with keeping more of their profits.

    I’ll see your bluff and raise you 5p to a 55% tax for over £250,000 p.a.. Any takers?

  23. Daniel Pitt

    RT @leftfootfwd: The truth behind the Mail's warning that 50p tax will cost £350bn http://bit.ly/ebOV2L by @wdjstraw

  24. Henry

    There was a hilarious article in last week’s Economist about some of the people who had fled to Geneva to escape the wicked British tax system. Many of them were homesick & wanted to return, finding Geneva boring, full of petty rules & vastly expensive.

  25. Mr. Sensible

    Valid point, Henry.

    People talk about the so called excessive regulation that comes from Europe, but Switzerland I think finds itself abiding by the same rules even though it is not part of the EU.

  26. Dave Citizen

    There’s a simple remedy if you don’t like paying 50% on what you earn over £150,000 – earn less. It seems to me there’s plenty of evidence that it would be better for Britain if we didn’t have people on mega bucks, so why not cap earnings to say £250,000 similar to Mail and Tory suggestions about C.Execs of Councils. Let’s face it, if Birmingham City Council Chief gets £185,000 (£233,000 with all benefits) then it’s hard to imagine many people in the country carrying more responsibility or doing a more difficult /important job: I guess some soldiers leading troops in battle or the boss of a critical care unit but those folks don’t get mega bucks. If the rest aren’t motivated to work for their country on £250,000 a year then, for the good of the country, lets help them leave (not sure it’s fair to dump such selfish types on other countries though)

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