Friday, March 16, 2012
The 50p rate
Posted by David Smith at 08:45 AM
Category: Thoughts and responses

The Guardian's story that George Osborne is "poised to slash" the 50p rate on earnings above 150,000 has livened up the debate. The position on the top rate has been clear for some time. It probably raises very little net revenue and, according to the Institute for Fiscal Studies, may even have a negative revenue effect.

On the other hand, the politics of early abolition are awful - at a time of widespread public pain and anger of bankers' bonuses - and the revenue evidence from Her Majesty's Revenue & Customs is unlikely to be yet conclusive because many top earners brought forward earnings to escape it. The bankers' effect could arguably be tackled by a special bonus tax but the government has said repeatedly its bank levy is a better way of taxing the banks.

For these reasons, most of the speculation has been about a strong signal on future abolition, or even a staged reduction to 45p then 40p, rather than immediate abolition. Maybe this explains why Liberal Democrats have been so voluble on tax in the run-up to the budget. There are important meetings of the "quad" of David Cameron, George Osborne, Nick Clegg and Danny Alexander today - originally it was thought the key decisions had to be agreed earlier in the week - so we shall see what happens. The story is here.