The IFS have published their budget commentary.
I've looked at the 50p tax rate commentary. It says:
- No administrative data on how much actually paid until tax returns for 2010—11 submitted in January 2012
So the claims made are not based on actual data.
It goes on:
- In Budget 2011, Chancellor asked HMRC to produce a report on how much 50p rate was raising in time for this Budget
What's clear is we did not get it. Instead we got a figure based on 2009 analysis:
- HMT's estimate from 2009 implied significant reduction in income resulting from the change: static costing £6.8 billion
So first, HMRC did not report on tax return data per se, they instead made a guess on what IFS thinks an inadequate base of what tax might have been paid if 40p rate had been still in operation - and they describe the data set used as 'the best they could do with information available' but clearly imply that does not mean it is reliable.
So all we actually got was an HMT guess, and nothing like facts.
The IFS note two possible responses:
Genuine reductions in income: working less hard, retiring early, leaving the UK
— Would expect these to reduce expenditure and hence indirect tax revenues as well as income tax revenues
In other words this footprint should appear in more than income tax. There's no sign it did.
Second possible response was avoidance. They say:
Avoidance responses: shifting income to different time periods, converting to capital gains, shifting income between spouses
— Would probably not reduce indirect tax revenues
— Moving income forward from 2010—11 to 2009—10 particularly important when examining 2010—11 data: clear incentive to do this when tax rise pre-announced
Seems that the latter is what was found. All they can say for sure is:
- Overall, incomes among those with incomes above £150k increased 14% in 2009—10 but fell 25% in 2010—11
— Particularly for dividend income: grew 78% among this group in 2009—10 and then fell 73% in 2010—11
— Incomes would have been much lower in 2009—10 without 50p rate, and much higher in 2010—11
So there was massive avoidance but that does not mean it would be repeated.
Unclear to what extent this was responsible for significant drop in income in 2010—11
— Using reasonable assumptions, HMRC find other considerable behavioural responses that reduced incomes
— But model is so imprecise that results are not very informative in themselves
In other words, alternative interpretations are viable. I suggest mine remains so. And I also suggest they remain within the plausible range for 2011/12, which is the year they were estimated for.
It will be curious to see what the data eventually says. I am very sure it will not be that the 50p rate raised anything as little as £100 million - or that incomes fell to suggest that was a significant behavioural response. But by then it will be too late.
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As you’ve extensively covered already this is a purely ideological move. What they didn’t want to happen was to have growth in the economy (whenever that may be) at the same time as higher marginal rates of tax – as surely that would betray the lie that higher tax rates for the 1% stunts growth.
As it is Osbourne will argue that 2+2 = 5 (45% tax + higher rate payers = growth).
Its clear that the Tories arguments were very very thin otherwise Osborne could have reduced the rate to 40% !
It’s a disastrous move for the Tories, it entrenches the countries view that they are only for the wealthy.
Cameron took 5 years to turn the Tories round from the toxic years of Thatcher and Major and still couldn’t win an election because of their public image.
I believe and hope that they lost the 2015 election yesterday,
I have a post on the TUC Touchstone blog looking at HMRC’s assumptions in detail here – in short, it seems to me that the estimate HMRC has used of Taxable Income Elasticity is too high (and therefore their estimate of revenue raised by 50p is too low). Also, I’d say it’s impossible to separate out the forestalling effect (bringing income forward from 2010/11 to 2009/10) from any longer-run behavioural effects using just one years’ data. In short, HMRC have been asked to do an impossible job with not enough data, at George Osborne’s behest. Doing the same thing next year with 2011/12 data might deliver more reliable results (although it would still be problematic).
Howard
I agree – everyone agrees – 2010/11 did not prove this tax did not work
I used 2011/12 to estimate
This could have been reliable – but he’s undermined that by allowing forestalling again – in reverse this time
Thanks!
Richard
I just do not buy HMRC’s counterfactual in the IFS diagrams which they use as the basis for calculating the amount of “avoidance” – it just doesn’t take account of the deferral of bonuses that arose in 2010-2011 on the introduction of the FSA Remuneration Code. If anyone looks at the Directors’ Remuneration Reports and Employee Emoluments notes in banks’ financial statements it is pretty obvious that thiis is what happened. The FSA should also have the necessary data given that they were approving Bank’s remuneration policies at the time.
And if the deferral was not taking place then the Govt/FSA is not regulating bankers bonuses as promised – they cannot have it both ways.
As Polly Toynbeen says this pathetic manipulation of the figures really needs to be stamped upon very hard.
Of course if the HMRC counterfactual is correct it means that incomes for the well off have recovered to their pre crash high in 2010-11 – so much for us all being in this together then.
Oh what tangled webs these Tories weave in their attempts to deceive.
This article by Danny Dorling, Professor of Human Geography at one of my local universities, The University of Sheffield, is worth a read, especially in the context of this latest opinion poll
http://www.independent.co.uk/news/uk/politics/most-voters-see-tories-as-the-party-of-the-rich-7586360.html
“Supporters of the so-called Laffer Curve, based on the notion that high earners will work less as tax rates go up, argue that this is indeed the case. A lower rate of tax has induced more effort, more income and so more tax revenues.
Or is it more simply that the very rich now take home such huge salaries and bonuses for doing no more than they did 30 years ago that explains the increase in the tax they pay?
This is the conclusion reached by Professor Danny Dorling of the University of Sheffield in a paper published today by IPPR: The Case for Austerity among the Rich.
Over the last 30 years, pre-tax income inequality in the UK has increased, as it has in most advanced countries, to reach levels last seen in the 1920s. And it has been massive rises in the incomes of those right at the very top of the income scale that have caused this increase in inequality.
In 1997, the average income of someone in the top 0.1% of earners in the UK was almost £650,000, or 61 times the average for those in the bottom 90% of the income distribution. By 2007, this had risen to almost £1,200,000 (a gain of 82%) and was now 95 times the average of the bottom 90%.
This happened because the CEOs of the UK’s largest companies and the small group of people that make up their boards and remuneration committees colluded to push up pay of top executives and the rents that were being extracted from the rest of the economy by the financial sector soared.
In his paper, Dorling argues that it is a myth that reducing the taxes on the very rich has somehow made the bulk of the population better off and suggests that a little more austerity among the rich would be an appropriate response to the current economic and fiscal crisis.
True, sales of luxury cars, the receipts of boarding schools and the profits of Michelin-starred restaurants would be lower as a result, as would house prices in the fashionable parts of London. But the impact on the bulk of the population would be negligible.
More austerity among the rich would, Dorling suggests, make it possible to lessen the scale of public spending cuts. He points out that by 2015, according to IMF forecasts, the UK will have a lower ratio of public spending to GDP than the United States and 14 other western EU countries.
And the danger of not acting is to entrench income and wealth gaps in the UK that are greater than at any point in living memory and greater than in almost all similarly wealthy countries. This could be expected to lead to high and rising levels of crime, social disorder, dysfunction and rising polarisation, fear and anxiety. Not a country happy with itself or pleasant to live in — except for the very rich isolated in their enclaves.
It is in this context that the Chancellor’s decision to cut the top rate of income tax from 50p to 45p should be seen — though it is not in fact the main issue. The bigger concern should be the huge disparity that has grown up in pre-tax incomes. The case for austerity among the rich is not about a return to the punitive tax rates of the 1970s; it is about reversing the 30-year trends to greater inequality in wages and salaries.”
http://www.ippr.org/images/media/files/publication/2012/03/rich-austerity_Mar2012_8917.pdf