The coalition governmentís decision to lower the top rate on income tax from 50% to 45% has had a hugely beneficial effect on the level of revenue the HMRC has taken in from the countryís top earners, a senior Conservative MP has argued.
John Redwood, MP for Wokingham, highlighted recent data released by the HMRC that displayed a £9 billion rise in tax receipts for the last financial year.
The Office for Budget Responsibility (OBR) have attributed the rise in revenue to people intentionally taking longer to declare their income, and thus the value on the receipts have been higher this year. This they argue, is because a number of the countryís top earners intentionally held back their bonuses and salaries for a year after hearing Chancellor George Osborneís budget in 2012, so that they could benefit from lower tax payments incurred from the implementation of the 45% tax in 2013.
However, Mr Redwood has dismissed this notion and has argued that this upward trajectory is a direct consequence of the top tier reduction and that it will continue to remain higher moving forward to the future.
Prior to the 2010 General Election, Labour increased the top tax band in the country to 50%, and it was retained at this value by the coalition until last April, when it was announced that it would fall to its current value of 45%.
An analytical forecast made by the Treasury back in 2012 suggested that revenue could rise by around £100 million each year if the top tax band was lowered to 45%.
And Mr Redwood, as current co-chairman of the Conservative Party’s Policy Review Group on Economic Competitiveness, has argued that the initial forecast was ëutterly wrongí and severely underestimated the long reaching effect that reducing the top tax band would have on encouraging rich people to make payments to the HMRC.
“The Revenue and Customs figures for what actually happened is stunning proof that the tax cut from 50p to 45 has led to a big tax increase on the rich,” he said.
He cited that the severity of the 50% top tax rate had discouraged a high number of top earners in the country from paying their tax in full, and this had resulted in a multitude of people adopting avoidance tactics, loophole exploitation and overseas account usage.
And whilst the OBR have sought to downplay the figures by identifying that they are only as high as they are this year due to people anticipating the new tax laws and subsequently withholding their taxable income for a year, Mr Redwood has argued that the high levels of revenue will continue at a sustainable level for years to come.
“I am quite sure we are going to get more in the following years. There will be a net gain,” he said.
He added: “I just want people to know the truth, and I now have a very important ally in Revenue and Customs.”
Mr Redwood is currently one of a number of people within the Conservative party who are urging Chancellor George Osborne to change the tax system further and reduce the top tax rate to 40%. It is thought that his latest remarks are intended to enhance the attractiveness of further tax cuts, by highlighting the positive effects that have been incurred since the last one.
And David Ruffley, a panel member on the Treasury Select Committee, has argued that adopting any income tax policy outside of the conventional 40% rate would be ëself defeatingí.
“Most Tories want to get back to what was the economic and political consensus that was 40p. We’re not saving millionaires, we just want to get back to the best way to raise money,” he added.
ëTax cut for richestí
With the 2015 General Election drawing closer with every passing day, the issue of income tax will likely be a prominent and frequently cited one in the next few months.
The Conservativeís are convinced that lowering taxes on income is a good way to tackle the ongoing ëcost of living crisisí that the country is experiencing, which has been incurred from the rise in wages occurring at a slower rate than inflation for the past few years.
This has substantially reduced consumer spending power outside of credit, and has meant that worker wages are being ësqueezedí to the brink by rising expenditure demands on a regular basis.
It is thought that implementing future tax cuts would be a great way for the government to also counterbalance the effects of their recent welfare cuts, which have incurred large levels of criticism for damaging the financial wellbeing of some of the countryís poorest in a post-recession era.
However, their commitment to reducing the top band for income tax is consistent with their overarching aim to roll back the role of the state in peopleís lives, and reduce the public spending deficit, and is an illustration that they are taking steps to ensure that consumer spending power is bolstered as a direct result of lower state reliance.
A Conservative Party spokesman said: “The government is clear that in clearing up Labour’s economic mess those with broadest shoulders should bear the biggest burden.”
Conversely, Labour have pledged to re-instigate the 50p top tax rate should they win the 2015 General Election, and have echoed the OBRís sentiments by arguing that the HRMCís figures are simply an one off that are only so high due to tax exploitation by the rich.
Shadow exchequer secretary Shabana Mahmood said: “As the Office for National Statistics and the OBR have both said, many of the highest earners moved income and delayed bonuses by a year after George Osborne’s 2012 Budget in order to benefit from the top rate tax cut.”
He added: “It cannot be right, at a time when the deficit is high and ordinary working people face a cost-living crisis, to have given the richest 1% of earners a tax cut of £3bn a year