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

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