From the TUC

Are the rich really paying five times more?

21 Mar 2012, by in Economics

The Chancellor claimed that today’s Budget shows that:

we’ll be getting five times more money each and every year from the wealthiest in our society

Is this true?

The claim appears to be based on the premise that the 50p tax rate only has potential to raise up to £100 million a year. It is scheduled to be cut in 2013-14. In that year, new taxes on the best off include £65 million from a crackdown in stamp duty avoidance and £180 million from the 7 per cent stamp duty rate. That appears to be 2.5 times more.

But this isn’t the end of the story, as it’s far from clear that those affected by new measures are the same as those who are currently paying the 50p tax rate. Analysis as to the impacts for this group is summed up the Budget’s asssessment of the household impacts of the change [my emphasis]:

There are a number of measures announced at this Budget that will principally affect this group but cannot be modelled in Charts B.1 to B.4. Taken together, it is estimated that the reduction in the additional rate of income tax to 45 per cent, the 25 per cent cap on income tax reliefs above £50,000 and the increase in stamp duty rates for high value properties will result in an expected average contribution to the Exchequer from those with incomes of above £150,000 of an additional £1,300 a year

The basis of these estimates are unclear.

But, regardless of what you think of their quality, the entire argument rests on the 50p tax rate only providing a net return of £80 million in 2013-14. Divided by 300,000 people, that gives a net forecast cost of the 50p tax of around £267 each, five times less than the estimated £1,300.

However, this estimate also rests upon the assumptions made in HMRC’s report, most notably that the total revenue the tax has potential to raise is around £3 billion, and that £2.9 billion of this is inevitably lost to ‘behavioural impacts’ (which, HMRC acknowledge, include huge amounts of income shifting and also ‘avoidance and evasion’).

Without getting into the technicalities of the report (on which more on this blog tomorrow) imagine that even half of the assumed maximum revenue of £3 billion could be recouped. That would mean that the net average cost per taxpayer in the 50p rate bracket was £5,000. This is four times more than this group are estimated (by unpublished data) to end up paying under the new system.

It’s bold to claim the richest are now going to be paying five times more – but the claim seems to be built on very shaky ground. Whether it stacks up as the public debate continues remains to be seen.