Income tax: the additional 50p rate ( PDF, 41 pages ... - Parliament

Those who seemingly despise bankers, a distressingly large proportion of the
electorate, hail [the 50p rate] as a progressive tax on City "fat cats". It is rapidly
becoming clear, however, that it is a rather crude instrument for the collective
punishment of this banker class, somewhat like the EU fishing quotas that encourage
trawlers to catch and discard more fish than they ever take to shore … In a letter to the
parliamentary public accounts committee, [Sir Nicholas Macpherson, the permanent
secretary to the Treasury] revealed that the 50p rate is paid by three times more
innocent bystanders than bankers. 81 Out of 275,000 affected, only 63,000 - 23 per cent
- work in "financial intermediation". Many of these collateral victims, of course, will be
precisely the entrepreneurs the UK must attract to stimulate job creation and quicken
its sluggish recovery from recession.
The result is that, just as countries need to compete for highly skilled labour as never
before, the UK is seen as a high-tax economy … It is also not clear that the 50 per cent
rate will raise the revenue the then Labour government forecast in the March 2010
Budget. Back then, the estimated revenue was £1.3bn in 2010-11, £3.1bn in 2011-12
and £2.7bn in 2012-13. The first year of its operation therefore comes to an end this
month, which means that the Treasury will in due course begin to have a sense of
whether the 50p rate is actually making a meaningful contribution to the job of deficit
reduction …
But even if the Treasury receives the revenues forecast in last year's Budget, they will
be unlikely to compensate for the damage to the UK's international competitiveness.
This leaves the government facing a dilemma. On the one hand, there are huge
political difficulties in even signalling an intention eventually to cut taxes for the well-off
(in line with reductions in all other rates of taxation and only once the public sector pay
freeze is lifted) at a time of hardship for the poor and difficulties for many lower- and
middle-income families. On the other hand, in a global economy, no prudent
government will want to lumber itself with Harold Wilson-esque rates of personal
income tax for a second longer than necessary. 82
In his Budget speech on 23 March 2011, Mr Osborne confirmed that there would be no
change in the rates of income tax for the coming year, though he suggested that the case for
the 50p rate should be re-examined once there was comprehensive data on the amounts of
money it had actually raised for the Exchequer in its first year:
In an age when business and capital and people can increasingly move anywhere,
high tax rates can do real damage. That is true for high corporate tax rates, and it is
true for high personal tax rates too. They crush enterprise, undermine aspiration and
often undermine tax revenues as people avoid them. I am clear that the 50% tax rate
would do lasting damage to our economy if it were to become permanent. That is why I
regard it as a temporary measure, just as my Labour predecessor, the right hon.
Member for Edinburgh South West (Mr Darling), did when he introduced it. I have said
before that now would not be the right time to remove it when we are asking others in
our society on much lower incomes to make sacrifices, for we are all in this together,
but I think it is sensible to see how much revenue it actually raises. I have asked Her
Majesty's Revenue and Customs- [ Interruption. ] I have asked HMRC to find out the
truth when the self-assessment forms start coming in. 83
81
82
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Public Accounts Committee, Banking support: written evidence from HM Treasury 16 March 2011 HC 973
2010/11
“Why a high-tax London is a disaster for Britain”, Financial Times, 17 March 2011
HC Deb 23 March 2011 c957
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