Wednesday, 12 June 2013

Osborne's 45% tax rate has already cost us billions

When George Osborne announced he would slash the top rate of tax from 50% to 45% - he made some ridiculous claims about how the 50% tax rate (in effect for only one year) had not raised much money (see point 2 of this post).

It was clear that £16 billion of tax had been brought forward (mostly in high earners' bonuses) to avoid falling under the 50% rate.

Today it became clear that same thing seems to have happened in reverse: to avoid the 50% tax rate the bonuses of the highest earners have been deferred to fall under the 45% rate.

The Morning Star reports:
"Britain has been conned out of billions of pounds by scheming bosses who put off their bumper bonuses until after bankers' mate George Osborne slashed the top rate of tax"
Indeed. The evidence is clear from table in the ONS Labour Market Statistics released today which shows that compared with a year ago finance sector bonuses were up 75%, in construction up 63%, and in the service sector up 52%.

Given any pick up in the economy is only marginal - and in some sectors non-existent - then it is patently obvious that businesses have deferred bonuses (largely the preserve of the top earners) to collectively avoid billions in tax.

As I told the Morning Star:
"Just as bonuses were brought forward to avoid the 50 per cent rate when it came in, so now bonuses from last year were deferred to avoid paying it again."
"At a time when the coalition is failing to reduce the deficit and has jacked up VAT on all of us, this tax cut for the highest 1 per cent of earners is a disgrace.
"These figures show that Labour would be right to restore the 50 per cent rate and to do so without notice to prevent avoidance through income-shifting."
And indeed to his credit, one of the few sensible things that Ed Balls said last week was that Labour favoured "keeping the 50p tax rate" - and let's hope he meant 'restoring' too should Labour get back in office in 2015.

Laughably the Treasury "dodged the evidence", the Morning Star reports - and instead commented that the 50p tax rate was "not effective at raising revenue" - which is a spurious claim given the billions of income shifted forward and then back to avoid it ... something that would not have been possible had the tax been in place for consecutive years, without the announced reduction.

So there we have it, the rich dodge their taxes thanks to Osborne's forewarned tax cut, the Treasury dodges questions and denies the evidence that contradicts Osborne ...

1 comment:

Andrew said...

It seems Labour leader Ed Miliband, or someone in his office, was reading the LEAP blog ahead of PMQs this week - see Daily Mail report (sorry).