March CPD Newsbrief – Financial services regulation and ethics
Labour’s 50% tax pledge
The 45% income tax rate would increase to 50% if Labour wins the general election in 2015, says Shadow Chancellor Ed Balls.
The previous Labour government created a 50% tax band in 2010 for anyone with income over £150,000, but the Coalition cut it to 45% last April. At the time the cut was made the Government said Treasury income would reduce by £100 million a year – a figure based on a 2012 assessment of 2010/11 tax returns by HMRC.
Mr Balls viewed the cut as “unfair” and claimed that it had “fed resentment” at a time of deep austerity. He also questioned the Government’s figures, citing more recent HMRC statistics that show those earning over £150,000 had paid almost £10 billion more in tax over the three years the 50p tax rate was in place.
The Government has argued that the extra £10 billion was not because of the 50p tax rate, but was attributable to more people earning higher salaries in that period than previously thought.
However, Labour says there is substantial uncertainty around the HMRC 2012 assessment. It quotes the Institute for Fiscal Studies (IFS), which says that HMRC made its calculations at great speed on the basis of one year’s tax returns that had only just become available. Labour has also claimed the key assumptions in the calculations were decided by ministers and not HMRC.
Labour omitted to mention the rest of the IFS view – that at the moment “the best evidence [the IFS has] still suggests that raising the top rate of tax would raise little revenue.”
The 50% tax band was always more about politics than raising revenue. However, as HMRC will shortly have tax return data for both 2011/12 and 2012/13, there is a case for looking at the issue again.
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