Did the 50p tax bring in no money at all?
18th Apr 2012
"[The 50p] top rate of tax has not raised any money." David Cameron, Prime Minister's Questions, 18 April 2012
The ongoing fallout from last month's Budget announcement (described by Ed Miliband as an "omni-shambles") dominated the first PMQs since the Easter break.
Tax in particular was a hot topic, with both the taxation changes made in the Budget and the personal tax affairs of the London Mayoral candidates getting much attention.
As the PM was preparing to leave the Chamber at the end of the allotted half hour Shadow Chancellor Ed Balls rose to accuse the Prime Minister of giving inaccurate information to the House on the sums raised by the 50p tax rate. So did it really raise no money at all?
Well according to the Chancellor, George Osborne, the 50 pence tax rate did raise money. As part of the 2011 Budget Mr Osborne asked Her Majesty's Revenue and Customs (HMRC) to look at how much money was raised by the 50 pence rate, focusing on self-assessment tax receipts.
In his 2012 budget speech he commented on the findings of the report:
"The increase from 40p to 50p raised just a third of the £3 billion we were told it would raise."
(A video of the relevant part of the speech can be found here.)
So according to the Chancellor the 50 pence tax raised £1 billion.
We can also find this figure within the report from HMRC he referred to: 'The Exchequer effect of the 50 per cent additional rate of income tax.' This report found that:
"The conclusion that can be drawn from the Self Assessment data is therefore that the underlying yield from the additional rate is much lower than originally forecast (yielding around £1 billion or less), and that it is quite possible that it could be negative."
While this does leave open the possibility that the impact of the rise in the top rate of tax to 50p may not have increased the amount taken by the Treasury, and may even have lost it money, it is just a possibility.
As the report itself notes, there is "uncertainty around these estimates" owing to the fact that it isn't clear how people changed their behaviour in terms of reporting taxable income in the two years either side of the change.
In as much as HMRC did put a figure on the amount generated by the 50p tax rate, the sum seems to be £1 billion, something acknowledged by the Chancellor himself in his Budget statement. While HMRC does recognise the possibility that the tax rate may have had a negative impact upon tax take, this appears to be a hypothetical lower limit to the 'headline' estimate.
The concerns raise by Ed Balls therefore seem sound, and the Prime Minister will have to clarify to the House whether his claim was a slip of the tongue, or if he has any further evidence to back up his position.
Update: One reader has pointed out that according to HMRC's calculations, all of the increased tax take occured in the first year of its operation, when people may not have had a chance to adapt their behaviour to account for the changes. In the second year of its operation it actually incurred a loss to the Exchequer. So while we focus here on David Cameron's claim that it has not raised any money and find that it isn't strictly true, we can't infer from this that it would have continued to make the Treasury money in the future.