From the Telegraph:
The 50p top rate of income tax will be scrapped next year under plans to be unveiled in this week’s Budget…George Osborne, the Chancellor, will say that the tax is undermining the British economy by deterring investors and entrepreneurs.
It will be replaced with a 45p rate from April 2013, which Treasury officials believe will raise more money because fewer people will avoid it.
By the time of the election Mr Osborne hopes to scrap the higher rate entirely, with Britain’s highest earners paying 40p in the pound.
The decision is likely to prove highly controversial and will be attacked by Liberal Democrat and Labour MPs, who will accuse the Conservatives of helping the wealthy.
However, Liberal Democrat ministers agreed to scrap the rate in exchange for a new “tycoon tax” intended to prevent widespread tax avoidance.Nick Clegg, the Deputy Prime Minister, is expected to argue that the “rich will pay more” under the budget deal. This is likely to be backed up by official figures, agreed by the Office for Budget Responsibility, the official economic watchdog.
There will also be a rapid increase in the tax-free personal allowance – not available to higher earners – from April 2013. The deal is understood to have been signed off on Friday following last-minute Coalition talks.
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19 Comments
Bad news for Mark’s infographic!
I’m at a loss where the idea that those who ‘seek to avoid’ the 50% rate will not ‘seek to avoid’ a 45% rate comes fom.
I’d imagine it comes from the figures mentioned in the article, which haven’t been published yet. This isn’t some honour system, they’re fiddling with the rules to make things harder to avoid.
We can’t really debate whether this might work until all the details are published.
“I’m at a loss where the idea that those who ‘seek to avoid’ the 50% rate will not ‘seek to avoid’ a 45% rate comes fom.”
I expect “The Quad” have rung round a few of their pals and received their assurances on the point.
Reducing the 50p tax rate might be good economics, but its terrible politics. The loopholes, mansion tax and tycoon tax should all be in place before the 50p rate is scrapped.
Andrew Suffield………………I’d imagine it comes from the figures mentioned in the article, which haven’t been published yet. This isn’t some honour system, they’re fiddling with the rules to make things harder to avoid…………..
In that case why not leave the 50% and ‘fiddle with the rules to make things harder to avoid’ A win-win situation.
So do I understand correctly that the Lib Dems have agreed to the scrapping of the 50p rate in return for the Tories agreeing to accelerate the raising of the threshold for those paying the standard rate?
Tax cuts all round, while the government is implementing severe cuts in public spending on the basis that “there is no money”?
And one other question springs to mind. If the abolition of the 50p rate is really expected to result in an increase in revenue, what is the need for it to be done in two stages, and why does Osborne only “hope” to complete the abolition by 2015?
Surely as Chancellor he can do it when he likes, and if it is really going to raise more money, shouldn’t it be done as soon as possible?
It does seem bizarre, given that not just Labour and Lib Dem voters but even the majority of Conservative voters oppose scrapping the 50p rate. Osborne needs to go and we need to have a Chancellor who has at least one foot in the real world.
I used to oppose cutting the top rate, but evidence does suggest that 40P would raise more overall than 50P so it’s better do that and raise more revenue rather than “looking tough on the rich.” Better to BE tough on the rich than to just give the impression of being tough. It’ll be interesting to see how Labour react at the GE 2015 about the 50P. They’ll be asked time and time again if they’ll put it back up from 40P to 50P and they’ll probably be stuck on the fence.
tom jones
Can you give a link to that evidence please – and quantitative rather than a nebulous critique based on a dubious interpretation of the Laffer Curve
I hope fellow readers will take note that the changes are from April 2013 – i.e. we will still have the 50% rate for another year. So that means we will have kept what Labour had intended only to be a temporary rate for 3 years and then only decreasing it by 5% rather than removing to altogether. I imagine the decrease along with targeting loopholes will make it less financially worthwhile to engage in avoidance.
I would like to see less reliance on income tax and more on asset/wealth taxes which are harder to avoid and would do more to tackle income inequality and facilitate wealth redistribution. The top 5% has 20x the combined income of the bottom 5% but 600x the combined value of assets. I think income tax banding should be linked to the minimum wage, with +10% (decreasing to +5% once more wealth taxes come in) for each multiple or part thereof of the minimum wage someone earns up to 45%. e.g. 0% up to £12,500, 10% up to £25,000, 20% up to £37,500, 30% up to £50,000 and so on.
“Can you give a link to that evidence please – and quantitative rather than a nebulous critique based on a dubious interpretation of the Laffer Curve?”
Does he who Laffs last Laff longest?
Number of days Labour were in power (1997-2010): 4,757.
Number of days during that time when the top rate of tax was 50p: 35.
So, in the words of the song “the rich get rich and the poor get nothing” –
For the rich it is a “Win-Win” situation – meanwhile in the rest of the country poor families are being kicked into the wall. Rightful Benefits being stopped while the chaotic DWP spends another eight weeks “considering” a new claim for Income Support and Housing Benefit stopped whle they “consider” the IS claim [because they cannot have it unless they are on IS].
Net result – family of five has £25 per week Child Benefit to live on for 8 weeks.
No JSA allowed – got to have Income Support – no argument.
Does anyone here think this is fair? I don’t!
“All in this together”? I don’t think so!!! Shame!
@Richard Shaw
“So that means we will have kept what Labour had intended only to be a temporary rate for 3 years and then only decreasing it by 5% rather than removing to altogether.”
Can’t stand Balls but hasn’t he since said it would be kept ? Surely with the NHS and Welfare Bills being waved through at least one red line could have been kept….
@Richard Shaw
Also worth noting that if any of the income in question is related to a bonus it can be delayed. In other words someone will negotiate a bigger bonus to be paid in 2013 and forego their bonus in 2012 realising an effective 5% interest payment on it….
Much as I dislike Osborne and all his works I have to admit that he is a shrewd operator – far more so than Clegg who looks to have been outmanoeuvred yet again.
The Tory strategy has long been to make the bucket as leaky as possible then to argue that it can’t carry much water; in other words the many tax loopholes are features and not bugs of the system – the 50p rate won’t raise much because it was designed not to and this impression is reinforced by some dodgy stats from HMRC. So, how tough will the new anti avoidance scheme be? Not very tough at all it would appear.
http://www.taxresearch.org.uk/Blog/2012/03/20/the-tax-avoidance-osborne-wont-tackle-tomorrow/
In fact, the most talked of change so far is the move to tax foreigners buying expensive properties in central London although why this should be controversial or party-political escapes me.
@ McClusky
It’s only bizarre if you think that Osborne is working for the electorate or perhaps just that part of it that voted Conservative. If, however, you consider the possibility that he is working primarily for the plutocrats who majority fund the Conservative party it all makes perfect sense.