An official study has demolished Labour’s claims that the 50p top rate of tax was raising vital billions to help repair the public finances.
Instead, a review by HM Revenue & Customs found, it brought in £1 billion at best — and probably far less as it encouraged the wealthy to take days off rather than surrender more than half their extra earnings.
Amazingly, said HMRC, today’s reduction in the top rate to 45p may not cost the Treasury a penny because, although £400 million in direct revenues will be forgone, the economy could benefit from greater activity and VAT payments on spending by top-rate payers.
The biggest loss was from highly-paid consultants taking time off rather than pay a marginal tax
rate of 52 per cent once National Insurance was added — leaving them only 48p for every extra pound earned. The 50p rate was introduced by Alistair Darling on earnings over £150,000 a year after the financial crash, aiming to raise £2.7 billion annually within two years.
At the time the Treasury estimated two-thirds of payers would change their behaviour as a result. Instead, 80 per cent changed their lifestyles or tax arrangements.
The HMRC study gave valuable evidence to support Mr Osborne’s decision to cut the rate in the face of Labour jibes that he was giving a huge boost to multi-millionaires.
