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

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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 83 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 20
Provision to set the rates of income tax for the 2011/12 tax year was included in the Finance Act 2011 (specifically section 1 of the Act). When this provision was debated at the Committee stage of the Finance Bill, David Hanson MP, speaking for the Opposition, moved an amendment to require the Government to publish “terms of reference, a timetable and updates” on the department’s review of the 50p rate, akin to a formal consultation: “it is inclement on [the Minister] to say to the House, ‘This is the time scale. This is who will undertake it. This is when it will report. This is how you put evidence into it. This is when we will make a decision for a future Budget on whether that 50p tax rate stays or goes’.” 84 In response the Exchequer Secretary, David Gauke, explained why HMRC had been given this task, but rejected the case for taking this approach: HMRC is undertaking the review because it is important that all the information available on the 50% rate is considered, and only HMRC can analyse individual selfassessment returns, because they contain confidential taxpayer information … In looking at the issue, HMRC’s main challenge will be to isolate the impact of the additional rate from other factors. In light of that, it will conclude its analysis as soon as it is practical to do so. Its findings will then be used to inform the Government’s wider thinking on taxation policy, with any announcements made by the Chancellor as part of the annual Budget process in the usual manner. Of course, the Government keep all taxes under review and reserve the right to announce changes at the appropriate time. Indeed, tax changes are generally made at Budgets. Given that, there is no reason to accept the amendment. The Minister went on to explain that as self-assessment returns for the 2010/11 year would be filed by the end of January 2012, HMRC will be reviewing this data “in early 2012.” 85 The amendment was put to a vote, and negatived by 16 votes to 14. The issue was debated a second time at the report stage of the Bill, when the Opposition put down an amendment to require the Office for Budget Responsibility to produce a report on the impact of the 50p rate. Moving the amendment David Hanson MP stated, “we want further explanation of the methodology that they will use to consider the 50p tax rate for future Budgets, and I think that the best organisation to do that is the Office for Budget Responsibility.” 86 Opposing the amendment the Exchequer Secretary argued that HMRC were best placed to review the data on the yield from the 50p rate, and criticised the way in which the Labour Government had introduced it: As I explained during the extensive debate on this clause in Committee … HMRC will consider all the available evidence on the impact of the additional rate, including data from the 2010-11 self-assessment returns, which will become available next year. Data from tax returns are clearly essential in any assessment of the revenue raised, but of course they contain confidential taxpayer information and are best reviewed by HMRC. It already has the expertise in monitoring and evaluating tax measures and is resourced to do so in future. The Office for Budget Responsibility has a different remit in producing independent economic and fiscal forecasts, judging policy against the fiscal mandate and analysing the sustainability of the public finances … 84 85 86 Public Bill Committee (Finance Bill) 10 May 2011 c10 op.cit. c22, c29. This point was also made in answer to PQs on this issue (eg, HC Deb 19 May 2011 c325W). HC Deb 4 July 2011 c1324 21
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