The top rate of income tax will be cut from 50p to 45p from April 2013.
The cut was announced by Chancellor George Osborne in today’s Budget. He said an HRMC report shows the increase in the top tax rate from 40p to 50p has raised just one third of the £3bn expected.
Osborne said: “No Chancellor can justify a tax rate that damages our economy and raises next to nothing. It is as simple as that. And thanks to the other new taxes on the rich I have announced today, we will be getting five times more money each and every year from the wealthiest in our society. So the richest pay more. The economy benefits. Britain is competitive again.”
In November, a report from the Centre for Economic and Business Research suggested collecting the 50p rate could actually cost the Government £1bn a year. It said the tax represented a “psychological threshold”, making it more likely people will work harder to minimise their exposure.
This week, Shadow Chancellor Ed Balls questioned the independence of HMRC’s report, suggesting Osborne shied away from asking the Office for Budget Responsibility to carry out the review because of its “political” nature.
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