It’s official: the 50p tax rate raises revenue

As the evidence comes in that the 50p tax rate raises hundreds of millions of pounds a year, Alex Hern looks at what the new Tory line will be on the rate.

 

An HMRC report on the 50p tax is expected to show that the first year of its introduction led to a “surge” in revenues of hundreds of millions of pounds, according to the Telegraph.

The paper reports:

The Daily Telegraph understands that an annual assessment of the tax’s impact on enterprise will be made – and the levy will be scrapped before 2015 only in the “unlikely event” that evidence shows that it is damaging the economy.

When asked about the 50p rate in an interview yesterday, the Prime Minister said:

“When you’re taking the country through difficult times and difficult decisions, you’ve got to take the country with you. That means permanently trying to make the argument that what you’re doing is fair and seen to be fair.”…

The HMRC report, to be delivered after Jan 31, will defy predictions that top earners will avoid paying the 50p rate.

The Telegraph also adds that:

It is now thought that the revenues will only begin falling “over time” as wealthier taxpayers develop ways of circumventing the higher rate, faced by those earning more than £150,000.

“The Treasury will set up an annual analysis of the 50p rate as the thinking now is that the more corrosive effects of the levy will take time to emerge,” said one source.

This line looks likely to become the new avenue of attack for those looking to scrap the tax. It was pre-empted by CEBR’s report in November, which concluded much the same thing: revenues were likely to rise in the short term, but the tax should be scrapped anyway.

At least CEBR accepted that the 50p rate raises revenue. Other Tories defending it didn’t even get that right.

Fraser Nelson argued:

As JFK said, the “paradox” is that higher rates mean less revenue. This is basic economics, true long before Art Laffer tried to explain it by drawing a yield curve on a cocktail napkin. Even the IFS suggests the 50p tax will lose £800 million.

But this study assumed the ultra-rich are no more mobile now than they were in 1988. Obviously, the real impact to Britain will be far higher.

According to him, the Taxpayers’ Alliance put the cost of the 50p tax at £4.5 billion. Which is at least £4.5 billion wrong, according to the HMRC.

Boris Johnson also got it wrong, saying:

As far as I understand it [the 50p rate of tax] is not really raking in huge sums at all, and if that is the case then I think we should think about what the real benefits of this tax is.

The letter to the Telegraph from over 30 top city figures hedged its claims:

We are confident that the cost to the Treasury [of scrapping the tax], if any, in the short term will not be material and that the advantages over the life of this Parliament in terms of generally increased economic activity will more than outweigh any direct costs.

Even so, the claim that hundreds of millions of pounds in revenue is “not material” is hard to reconcile with the behaviour of a government cutting as though every penny counts.

The evidence is as clear as it is unsurprising: Taxing the rich raises revenue. The smart right-wingers will pick new targets, because this is looking like a losing battle.

See also:

50p tax: Still a Tory obsession, still not that exceptionalAlex Hern, November 24th 2011

The 50p tax debate: Are we taxing off our nose to spite our face?Luke Bozier, September 16th 2011

Only quarter of voters want to scrap 50p taxWill Straw, August 1st 2011

Fraser Nelson is wrong on the 50p tax rateDuncan Weldon, February 24th 2011

Fraser Nelson’s attack on 50p tax rate is full of holesJana Mills, November 12th 2010

28 Responses to “It’s official: the 50p tax rate raises revenue”

  1. David Griffiths

    It's official: the 50p tax rate raises revenue, writes @alexhern: http://t.co/oCifNUJV

  2. Will Straw

    If Tele is right that 50p tax will raise revenue, will we hear mea culpa from those who predicted it would lose cash? http://t.co/cx7Y90MZ

  3. The Young Chevalier

    It's official: the 50p tax rate raises revenue, writes @alexhern: http://t.co/oCifNUJV

  4. Giles Bradshaw

    This is interesting in terms of the short and long term effect of the rate.

    If ultimate long term effect would be that revenues fall over time from the 50p tax rate. One policy might be to keep it until revenues had fallen to the point where it could be said to be actually losing us money. However at that point if we scrapped it revenues would presumably fall even more because people would not immediately re arrange their affairs to cope with it being a 40p tax rate again.

    So the short termist argument would allways be to keep it. However the long term effect might end up being negative overall.

  5. Pulp Ark

    It’s official: the 50p tax rate raises revenue http://t.co/UlWxpk3N #Sustainable_Economy #50p_tax #Boris_Johnson #muslim #tcot #sioa

  6. Dr Kalvis M. Jansons

    RT @leftfootfwd: It's official: the 50p tax rate raises revenue, writes @alexhern: http://t.co/ORLIsP7J #NewsClub

  7. Duncan Keeling

    RT @DrKMJ: RT @leftfootfwd: It's official: the 50p tax rate raises revenue, writes @alexhern: http://t.co/CqOZp6Ox #NewsClub

  8. Gareth Siddorn

    If Tele is right that 50p tax will raise revenue, will we hear mea culpa from those who predicted it would lose cash? http://t.co/cx7Y90MZ

  9. Dan Robinson

    It's official: the 50p tax rate raises revenue, writes @alexhern: http://t.co/oCifNUJV

  10. Other TaxPayers Alli

    RT @leftfootfwd: It's official: the 50p tax rate raises revenue, writes @alexhern: http://t.co/GS7W2KtC

  11. lukewaterfield

    RT @leftfootfwd: It's official: the 50p tax rate raises revenue, writes @alexhern: http://t.co/GS7W2KtC

  12. George McLean

    Let’s take the opportunity, while we are talking about income tax, to talk as well about land value tax that is much more difficult to avoid, that cannot be considered a “deadweight” tax, and will help to get underdeveloped land back into practical use rather than it being an investment opportunity for property speculators.

  13. Newsbot9

    George;

    1. How will you handle the issue of council tax benefit, given the tax WILL be passed on to tenants?
    2. How will you stop living above a shop from becoming prohibitively expensive (as it is in every proposal I’ve seen so far)
    3. How will you handle the problem of poorer people being immediately priced out of London and city centres?

    There are dozens of questions like this which I’ve yet to see properly addressed for a LVT.

  14. Newsbot9

    George;

    1. How will you handle the issue of council tax benefit, given the tax WILL be passed on to tenants?
    2. How will you stop living above a shop from becoming prohibitively expensive (as it is in every proposal I’ve seen so far)
    3. How will you handle the problem of poorer people being immediately priced out of London and city centres?

    There are dozens of questions like this which I’ve yet to see properly addressed for a LVT.

  15. David Cheetham

    If Tele is right that 50p tax will raise revenue, will we hear mea culpa from those who predicted it would lose cash? http://t.co/cx7Y90MZ

  16. maxlawsontin

    http://t.co/MdAJTGer It’s official: the 50p tax rate raises revenue. Well blow me down with a feather. @robinhood @falseecon @occ…

  17. Staffordshire UNISON

    RT @leftfootfwd: It's official: the 50p tax rate raises revenue, writes @alexhern: http://t.co/GS7W2KtC

  18. Robin Hood

    http://t.co/MdAJTGer It’s official: the 50p tax rate raises revenue. Well blow me down with a feather. @robinhood @falseecon @occ…

  19. neilrfoster

    http://t.co/MdAJTGer It’s official: the 50p tax rate raises revenue. Well blow me down with a feather. @robinhood @falseecon @occ…

  20. Ben Phillips

    http://t.co/MdAJTGer It’s official: the 50p tax rate raises revenue. Well blow me down with a feather. @robinhood @falseecon @occ…

  21. Tim

    RT @leftfootfwd: It's official: the 50p tax rate raises revenue http://t.co/qjU8UvtZ

  22. Jane Ayres

    It's official: the 50p tax rate raises revenue, writes @alexhern: http://t.co/oCifNUJV

  23. Judith Robertson

    http://t.co/MdAJTGer It’s official: the 50p tax rate raises revenue. Well blow me down with a feather. @robinhood @falseecon @occ…

  24. OccupyTaxes

    RT @robinhood RT @maxlawsontin: http://t.co/0l7A1VsB It’s official: the 50p tax rate raises revenue. Well blow m… http://t.co/t1BHWMjy

  25. Look Left – Wonga’s student ‘scam’ comes unstuck | Left Foot Forward

    […] see Tony Dolphin’s latest Economic Update; Alex Hern on the evidence the 50p top rate of tax is raising revenue; Dr Graham Cookson on the false economy of the legal aid cuts; and Daniel Elton on how […]

  26. Richard Darlington

    Ahead of @IPPR's Graeme Cooke on @SkyNews at 1030 – see @wdjstraw on @leftfootfwd on the 50p tax for £150k+ earners http://t.co/1fy7v6i3

  27. Memo to 50p tax trashers: Laffer Curve peaks at over 75 per cent | Left Foot Forward

    […] claim is hard to back up with empirical evidence. As we reported last month, the HMRC’s best estimate is that : The first year of [the tax rate's] introduction led to a “surge” in revenues of […]

  28. OBR chief: “No evidence” Osborne’s 50p tax cut will promote growth | Left Foot Forward

    […] It’s official: the 50p tax rate raises revenue 9 Jan […]

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