Budget 2012

Osborne says top-rate tax cut will not hurt coffers

 

The top rate of income tax will be cut from 50p to 45p in April next year, George Osborne confirmed in what is expected to prove the most memorable measure in his Budget.

Defending his controversial decision, the Chancellor took refuge in a study by HM Revenue & Customs (HMRC) predicting that the 50p rate would raise only £1bn of the £3bn forecast by the previous Labour Government, which raised the top rate on incomes over £150,000 a year from 40p to 50p in 2010.

HMRC found that £16bn of income had been deliberately switched to the previous tax year so people would avoid paying the new higher rate – costing taxpayers £1bn.

Mr Osborne argued that such "massive distortions" meant the 50p rate could not be justified because it damaged Britain's competitiveness without raising significant sums of money. He said Britain's 50p top rate was the highest in the G20 group of leading economies – higher than America, France, Italy and Germany.

The direct cost of having a 45p rather than 50p rate was only £100m a year and HMRC believed the loss of other tax revenues might even cancel that out. "It raises at most a fraction of what we were told – and may raise nothing at all," said Mr Osborne. "No Chancellor can justify a tax rate that damages our economy and raises next to nothing," he said. "Thanks to the other taxes on the rich I've announced today, we'll be getting five times more money each and every year from the wealthiest in society."

Labour said it would reverse the cut if an election were held now but stopped short of pledging to bring back the 50p if it regains power after the election due in 2015, insisting it was too soon to write the party's manifesto.

Labour said it was wrong to cut the top rate now, accusing the Chancellor of handing an average £10,000 tax cut to 300,000 top rate taxpayers and 14,000 millionaires a tax cut of £40,000 each.

"He has gambled that the result of this tax cut is to get £2.9bn back from people currently avoiding tax through behavioural impact," said Ed Balls, the shadow Chancellor.

Mr Balls challenged Mr Osborne's case for reducing the top rate. He said it was unfair to judge the revenue raised from Labour's introduction of the 50p band in its first year, citing the view of the independent Institute for Fiscal Studies that it is "too soon" to make a judgement.

He also seized on the Office of Budget Responsibility's statement that the results of the HMRC study are "highly uncertain".

Mr Balls said the decision to delay the cut until April 2013 would cost taxpayers £2.4bn because people would delay taking income until after it happened to keep down their tax bills.

Liberal Democrats insisted they were not "obsessed" with the top rate of tax and would not have cut it if they had been in power on their own. But privately senior Lib Dems are worried that they, as well as the Conservatives, face a "hard sell" to justify a tax cut for the top one per cent at a time when many families are being squeezed.

Start your day with The Independent, sign up for daily news emails
Sport
tennisLive: Follow all the updates from Melbourne as Murray faces Czech Tomas Berdych in the semi-final
Arts and Entertainment
'The Archers' has an audience of about five million
radioA growing number of listeners are voicing their discontent; so loudly that even the BBC's director-general seems worried
Arts and Entertainment
Henry VIII played by Damien Lewis
tvReview: Scheming queens-in-waiting, tangled lines of succession and men of lowly birth rising to power – sound familiar?
News
Joel Grey, now 82, won several awards for his role in Cabaret
people
PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Sport
Harry Kane celebrates scoring the opening goal for Spurs
footballLive: All the latest transfer news as deadline day looms
Arts and Entertainment
Master of ceremony: Jeremy Paxman
tvReview: Victory for Jeremy Paxman in this absorbing, revealing tale
2015 General Election
May2015

Poll of Polls

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Ashdown Group: Finance Manager - ACCA/CIMA - St Albans, Hertfordshire

£55000 - £58000 per annum: Ashdown Group: A truly exciting opportunity has ari...

Ashdown Group: Credit Controller - London, Old Street

£25000 - £28000 per annum + benefits: Ashdown Group: Credit Controller - Londo...

Recruitment Genius: Telesales / Appointment Maker - OTE £19,000-£23,000

£15000 - £19000 per annum: Recruitment Genius: An excellent opportunity to kic...

Ashdown Group: 1st Line Support Analyst

£18000 per annum: Ashdown Group: This role is a perfect opportunity for someon...

Day In a Page

Isis hostage crisis: Militant group stands strong as its numerous enemies fail to find a common plan to defeat it

Isis stands strong as its numerous enemies fail to find a common plan to defeat it

The jihadis are being squeezed militarily and economically, but there is no sign of an implosion, says Patrick Cockburn
Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action

Virtual reality: Seeing is believing

Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action
Homeless Veterans appeal: MP says Coalition ‘not doing enough’

Homeless Veterans appeal

MP says Coalition ‘not doing enough’ to help
Larry David, Steve Coogan and other comedians share stories of depression in new documentary

Comedians share stories of depression

The director of the new documentary, Kevin Pollak, tells Jessica Barrett how he got them to talk
Has The Archers lost the plot with it's spicy storylines?

Has The Archers lost the plot?

A growing number of listeners are voicing their discontent over the rural soap's spicy storylines; so loudly that even the BBC's director-general seems worried, says Simon Kelner
English Heritage adds 14 post-war office buildings to its protected lists

14 office buildings added to protected lists

Christopher Beanland explores the underrated appeal of these palaces of pen-pushing
Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Scientists unearthed the cranial fragments from Manot Cave in West Galilee
World War Z author Max Brooks honours WW1's Harlem Hellfighters in new graphic novel

Max Brooks honours Harlem Hellfighters

The author talks about race, legacy and his Will Smith film option to Tim Walker
Why the league system no longer measures up

League system no longer measures up

Jon Coles, former head of standards at the Department of Education, used to be in charge of school performance rankings. He explains how he would reform the system
Valentine's Day cards: 5 best online card shops

Don't leave it to the petrol station: The best online card shops for Valentine's Day

Can't find a card you like on the high street? Try one of these sites for individual, personalised options, whatever your taste
Diego Costa: Devil in blue who upsets defences is a reminder of what Liverpool have lost

Devil in blue Costa is a reminder of what Liverpool have lost

The Reds are desperately missing Luis Suarez, says Ian Herbert
Ashley Giles: 'I'll watch England – but not as a fan'

Ashley Giles: 'I'll watch England – but not as a fan'

Former one-day coach says he will ‘observe’ their World Cup games – but ‘won’t be jumping up and down’
Greece elections: In times like these, the EU has far more dangerous adversaries than Syriza

Greece elections

In times like these, the EU has far more dangerous adversaries than Syriza, says Patrick Cockburn
Holocaust Memorial Day: Nazi victims remembered as spectre of prejudice reappears

Holocaust Memorial Day

Nazi victims remembered as spectre of prejudice reappears over Europe
Fortitude and the Arctic attraction: Our fascination with the last great wilderness

Magnetic north

The Arctic has always exerted a pull, from Greek myth to new thriller Fortitude. Gerard Gilbert considers what's behind our fascination with the last great wilderness