- Sunday 16 March 2014
- My Account
- Logout
- Register
- Login
- News
- Images
-
Voices
-
Find by writer
- Yasmin Alibhai-Brown
- Rebecca Armstrong
- Memphis Barker
- Terence Blacker
- Chris Blackhurst
- David Blanchflower
- Archie Bland
- Chris Bryant
- Ian Burrell
- Andrew Buncombe
- Ben Chu
- Patrick Cockburn
- Laura Davis
- Mary Dejevsky
- Grace Dent
- Robert Fisk
- Andrew Grice
- Stefano Hatfield
- Philip Hensher
- Ian Herbert
- Howard Jacobson
- Ellen E Jones
- Alice Jones
- Owen Jones
- Simon Kelner
- Dominic Lawson
- Donald MacInnes
- Donald Macintyre
- Lisa Markwell
- Michael McCarthy
- Hamish McRae
- Jane Merrick
- James Moore
- Matthew Norman
- Dom Joly
- Amol Rajan
- Comment
- Campaigns
- Debate
- Editorials
- Letters
- IV Drip
- Archive
- Our Voices
- Commentators
- Columnists
- Democracy 2015
- IV Drip Archive
- Indy docs
-
Find by writer
- Sport
- Tech
- Life
- Property
- Arts + Ents
- Travel
- Money
- IndyBest
- Blogs
- Student
- Offers
Monday 7 January 2013
Ignore the 50p tax rate grandstanding, its real effects are impossible to tell
The numbers we have simply don't stand up to scrutiny
As the vote on the government’s decision to cap annual benefits increases at 1 per cent a year looms, Labour are predictably highlighting the contrast with the decision to abolish the 50p tax rate.
Labour say George Osborne’s decision to abolish the tax from this April is proof of the hollowness of his “We are all in this together” refrain. The Conservatives retort that they were merely correcting a dangerous Old Labour tax that cost more than it brought the Exchequer. These are arguments that we’ll hear in any TV debates in 2015.
The truth is we don't know who is right.
Economics is meant to be about numbers and data. But the row over the 50p rate is the classic example of why it is "the dismal science". The tax was brought in for so short a time that it is impossible to gauge whether or not it will bring in money to the treasury. Because of "frontloading" and "backloading"– top rate taxpayers shifting income to fall either before or after the life of the 50p tax rate – we just can’t trust the numbers we do have.
Opponents of the 50p rate think they have superficially compelling arguments – 6,000 paid the 50p rate in 2010/11, compared to 16,000 who paid the top band the year before, at a loss of £6.9 billion to the Exchequer. Yet HMRC estimates that £18 billion was lost in ‘forestalling’: the 2009/10 figures were artificially high, just as the 2010/11 ones were artificially low. Supporters of it point out that, even allowing for the behavioural changes the tax brought about, it did raise £1.1 billion in its first year. But this is no guarantee the results would have been maintained – revenues might have decreased, just as they could have risen. We will never know: the tax would have to be in place for at least five years for any data worthy of the name to emerge.
But as Labour’s attacks on the abolition of the 50p rate continue, George Osborne may regret not pursuing a softer approach in removing the rate.
Osborne clearly believes that the tax is detrimental to Britain’s long-term competitiveness and will result in an exodus of the wealthy in the long run. But, without contradicting this stance, Osborne could have announced that the 50p rate would remain, as an emergency measure, until its abolition in 2015. It would have been a way of maximising the tax’s revenue-raising potential whilst minimising the possibility that it would lead to tax-fleeing emigration. And it would have even gone a long way towards neutralising Labour attacks.
As it is, the charade will continue. The Conservatives and Labour will both make bold, exaggerated and unfounded claims about the 50p rate’s effects. They should be politely ignored.
-
The club so powerful no one admits to having joined
DJ Taylor -
Gender-specific books demean all our children. So the Independent on Sunday will no longer review anything marketed to exclude either sex
Katy Guest -
Tony Benn was entirely ineffectual - and usually wrong
Joan Smith -
Ukraine crisis: Is the West trying to upset the Russians?
Paul Vallely -
Three years after Gaddafi, Libya is imploding into chaos and violence
Patrick Cockburn
-
Ukip and Nigel Farage on course for remarkable victory in European elections
-
Tony Benn was entirely ineffectual - and usually wrong
-
Gender-specific books demean all our children. So the Independent on Sunday will no longer review anything marketed to exclude either sex
-
Scottish independence: Alex Salmond accuses Westminster's 'daytrippers' of 'scaremongering'
-
Three years after Gaddafi, Libya is imploding into chaos and violence
-
Ukraine crisis: The last days of a united nation
Cumbria: The place to be
Win the ultimate photograph break worth over £2500 in the Lake District, Cumbria.
Summer Austria
In the summer, Austria casts off its iconic icy appearance and turns gorgeously green – its mountains and valleys becoming the perfect playground for sunny adventures.
Win a luxury two-night break in York
Plus two East Coast return tickets from London to York and two York Passes
Coats for inbetweeners
In November you coveted the soft teddy down of your winter coat – the affair is over. Now you’re trading up: switching cosy coat for spring jacket.
Enter the latest Independent competitions
Win anything from gadgets to five-star holidays on our competitions and offers page.
Business videos from commercial thought leaders
Watch the best in the business world give their insights into the world of business.
Tim Wigmore
Related Articles
-
Sean O'Grady: who will fix the UK's grotesque housing situation?
-
Bitter? You should see the ex-First Lady! François Hollande given a warm British welcome
-
Don’t tell the taxman, but Google revenues will soon beat the BBC’s
-
Mark Warburton's faith in youth has got League One leaders Brentford growing up fast
-
David Cameron beats Conservative Immigration Bill rebellion – with the help of the Opposition
iJobs General
Channel Marketing Manager, Aylesbury
£50000 - £60000 per annum: Charter Selection: This well respected and exciting...
Digital Marketing Manager, Aylesbury
£40000 - £50000 per annum: Charter Selection: This exciting company and market...
Private Client - Gloucestershire
£40000 - £60000 per annum + EXCELLENT SALARY: Austen Lloyd: Senior Private Cli...
Signal Processing Engineer / Acoustics / Matlab / Labview
£25,000 to £35,000: IT Connections Ltd: Signal Processing Engineer / Acoustics...