The 50 per cent rate of income tax will cost HM Revenue & Customs £1bn a year by the middle of this decade, according to a new report from the Centre for Economic and Business Research.
Chancellor George Osborne has asked HMRC to review how much revenue the 50 per cent rate raises for the Government, with a view to cutting it completely or reducing it. Treasury estimates put that figure at £2.7bn a year, 70 per cent of which would remain if the rate was cut to 45p.
But the CEBR report, published last week, says that when combined with National Insurance, VAT and restrictions on pensions, the 50 per cent rate pushes those who might pay it beyond “a psychological threshold”, making it more likely they will take steps to minimise their exposure. It adds that a 36 per cent top rate of tax would maximise the take from income tax.
CEBR chief executive Doug McWilliams says: “Increased globalisation and easy access to wealth management services are enabling Britain’s wealth creators to minimise their tax liability in the UK. In the long term, this could have devastating consequences for Government revenue as more money is likely to be lost rather than gained by the higher-rate tax. Our projections show the 50p tax is set to lose the Treasury more than £1bn a year by the middle of the decade.”