I suspect that this is well sourced. Its by Patrick Wintour in the Guardian:
An initial cut in the top rate of income tax for those earning £150,000 to 45p in 2013 would mean a loss of less than £400m in revenue, some government sources suggested, although these findings are open to challenge. But planned changes to stamp duty alone should raise £500m and other measures such as a new general tax avoidance rule would raise far more revenue, the government sources claimed.
So we have a 45p tax rate - about which I argued the other day:
This will signal three things.
The first is that the case for the tax rate raising money has been conceded.
The second is that the political significance of the rate in delivering tax justice will have been conceded.
And third it will say despite such obvious evidence that these first two present that the Tories will serve their own come what may. In that case the compromise may be the worst possible outcome of all for the Tories: they will have conceded that what they are doing is irrational and purely self serving but will have done it none the less.
But also note the argument is that the loss of revenue will be just £400 million - implying the rate as a whole raises £800 million at 50p (yes, you can do the linear extrapolation here, I suggest: it's either avoided or not). But that then begs how hat can be true when HMRC's own data suggests the take should be £6.7 billion. There will be some answering to do. And I've already dismissed the supposed Laffer effect as a spurious. Sio this number looks horribly fabricated.
And now let's look at the other claims. Stamp duty on properties worth more than £1 million should raise £500 million they say. Hang on, the tax rate here is 5%. Half a percent is paid on company deals. So 4.5% is saved. To generate that much requires £11.1 billion of properties to be taxed at the additional 4.5%. But according to Channel 4 there are only 94,000 properties currently owned by companies and only a little over 6,000 property sales for more than £1 million a year. The requires all of them to have been in companies for that to pay. Candidly, I don't believe that.
But even if true the shortfall against the 50p tax yield would be £6.2 billion.
And as I've noted, since we aren't going to get a general anti-avoidance rule that's not going to raise much more than 50p.
In other words, the numbers in the briefings just don't stack.
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BBC news are reporting that the OBR has “signed off” a reduction to 45p as “revenue neutral”. If this is the case then you would obviously have to contest your calculations against those of the OBR.
I believe it impossible to conclude this
There is not a hope it is right – not least because the hard evidence is not available as yet – as Channel 4 have also argued
So this is not just incompetent, it’s also factually inaccurate
And that shatters the myth of independence – which the OBR never had. It’s on the same corridor as Osbornes’ office
PS
This would raise interesting issues and arguments. The OBR, as we know, was set up, supposedly, as a politically neutral body rather like the MPC.
If you do end up in a dispute over the calculations with the OBR would your dispute centre on them not, as they claim to be, politically neutral or would the dispute be a matter of their competence.
I realise that this is something of a hypothetical question but an indication of tour thoughts would be interesting.
Neutrality would be the key
You keep repeating that HMRC’s figures imply the 50% rate raises an additional £6.7 billion, but you know that’s not true, because you did your calculation on total income ignoring tax reliefs.
However, most of the difference between your projections and HMRC’s comes from wildly different assumptions about the elasticity of taxable income with respect to marginal tax rates: you are assuming that it is zero. Which is strange, because a few months ago you quoted approvingly a calculation of the revenue-maximizing top marginal rate which uses an elasticity of 0.17 (more on this analysis here).
I suspect that HMRC has overestimated the elasticity effect. But you don’t help your case with these simplistic overstatements.
No I did not do my income on total incomes ignoring tax reliefs
I did it on their estimate of those paying the 50-p tax rate – i.e. after tax reliefs
And there is no difference between my figure and HMRC’s – I have stated their figure
So your claims utterly miss the point
Have another look at the HMRC table. The first column is labelled “Range of total income”. It’s pretty obvious that this includes tax reliefs, because not all the people earning over £150,000 are paying Additional Rate tax. Your calculations use the column “Total income of taxpayers”: it’s pretty obvious that includes tax reliefs too because it would be absurd to be inconsistent about it, and because otherwise the “Average amount of tax” numbers would be too low.
But I only considered the tax paid by those paying at 50%
And therefore you’re wrong
And I note the fact that I allowed for this in doing my calculations
But no doubt you did not read the report I wrote
I’m looking at p19 of your report. Let’s take the row for taxpayers with total incomes over £1mn. You find an average income for them by taking their total income (which I think we agree includes tax reliefs) and dividing by the “Number of taxpayers in income bracket”. Then you subtract £150k to get “Part of income subject to 50% tax rate on average”. You take a tenth of that to find the effect of cutting the rate to 40%. At no point in that calculation do you subtract anything for tax reliefs.
Because I don’t need to do so – HMRC have
And let’s be clear – that income is after massive amounts of avoidance before reliefs
So shall we get real here?
And just in case of doubt – haven’t you noticed the pages I dedicated to reliefs and their impact?
Are you saying that “Total income” in the HMRC table is really “Income net of allowances and reliefs”?
Tell me what else it is
It’s total (declared) income.
And as I’ve pointed out – I’ve allowed for that
Please stop wasting my time