Strong revenue in January doesn't mean the 50p rate is working

February 23, 2011 9:32 AM

Duncan Weldon is over the moon claiming that all the "scaremongering" that the 50p rate could well lose money, which has come not just from the TPA but also the Institute for Fiscal Studies and consultancy the Centre for Economics and Business Research, should be rejected because we saw strong income tax returns in January.

[caption id="attachment_24930" align="alignright" width="300" caption="Debt interest as a share of national income projections, Bank for International Settlements"][/caption]

Yesterday's figures were a pleasant surprise, but we aren't anywhere near being out of the woods yet.  Just yesterday there were fresh warnings about our long term fiscal position.  The Press Association reported a new study by analysts Maplecroft.  Our "high public spending on health and pensions, massive borrowing and shrinking working population" were cited as we were rated as having the tenth worst long term fiscal pressure.  That warning follows a Bank of International Settlements report last year which also suggested a grim long term picture.

January revenue figures don't mean the 50p rate has been effective either.  The 50p rate will affect two groups of workers:

  1. Employed.  Given that the rate came in from April 2010 why would resulting revenue suddenly start showing up in the public sector accounts in January 2011?

  2. Self-employed.  Self-employed workers did pay tax in January, but on their 2009-10 income, before the rate came in.  As Fraser Nelson points out on the Spectator Coffee House blog, many high earners may have brought forward income so that they paid at the 40 per cent rate levied in 2009-10 instead of the 50 per cent rate in 2010-11.  In other words, high revenues last month may well be evidence that the 50p rate does have an effect on incentives, not that it doesn't.


The evidence that the 50p rate will lose money was summarised in our book How to Cut Spending.  In it we ran the numbers showing how even the Treasury's own sums suggest it will lead to lower revenue if you adjust the "Taxable Income Elasticity" to a more reasonable figure in line with that found in HMRC studies.

Duncan Weldon is either ignorant of the facts or trying to create a useful myth.  The reality is that all of the best estimates available suggest that ordinary people are going to have to pay more, or face greater spending cuts, for the luxury of spiting the rich.  That makes the policy indefensible.Duncan Weldon is over the moon claiming that all the "scaremongering" that the 50p rate could well lose money, which has come not just from the TPA but also the Institute for Fiscal Studies and consultancy the Centre for Economics and Business Research, should be rejected because we saw strong income tax returns in January.

[caption id="attachment_24930" align="alignright" width="300" caption="Debt interest as a share of national income projections, Bank for International Settlements"][/caption]

Yesterday's figures were a pleasant surprise, but we aren't anywhere near being out of the woods yet.  Just yesterday there were fresh warnings about our long term fiscal position.  The Press Association reported a new study by analysts Maplecroft.  Our "high public spending on health and pensions, massive borrowing and shrinking working population" were cited as we were rated as having the tenth worst long term fiscal pressure.  That warning follows a Bank of International Settlements report last year which also suggested a grim long term picture.

January revenue figures don't mean the 50p rate has been effective either.  The 50p rate will affect two groups of workers:

  1. Employed.  Given that the rate came in from April 2010 why would resulting revenue suddenly start showing up in the public sector accounts in January 2011?

  2. Self-employed.  Self-employed workers did pay tax in January, but on their 2009-10 income, before the rate came in.  As Fraser Nelson points out on the Spectator Coffee House blog, many high earners may have brought forward income so that they paid at the 40 per cent rate levied in 2009-10 instead of the 50 per cent rate in 2010-11.  In other words, high revenues last month may well be evidence that the 50p rate does have an effect on incentives, not that it doesn't.


The evidence that the 50p rate will lose money was summarised in our book How to Cut Spending.  In it we ran the numbers showing how even the Treasury's own sums suggest it will lead to lower revenue if you adjust the "Taxable Income Elasticity" to a more reasonable figure in line with that found in HMRC studies.

Duncan Weldon is either ignorant of the facts or trying to create a useful myth.  The reality is that all of the best estimates available suggest that ordinary people are going to have to pay more, or face greater spending cuts, for the luxury of spiting the rich.  That makes the policy indefensible.

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