The welfare cuts that the 50p tax rate could have prevented

George Osborne abolished the top rate of tax after it "only" raised £1bn - but which welfare cuts could have been avoided for that amount?

George Osborne's stated justification for abolishing the 50p income tax rate was that, due to mass avoidance, it raised "just a third of the £3bn" expected. Even by Osborne's standards, this was a peculiarly unconvincing argument. It's true that £16bn of income was shifted into the previous tax year  - when the rate was still 40p - but this was a trick the rich could only have played once. Moreover, as the government has acknowledged in other instances, tax avoidance isn't an argument for cutting tax, it's an argument for limiting avoidance. 

But leave this aside. The fact remains that, as Osborne conceded, the 50p rate raised £1bn (and had the potential to raise far more). Not a transformative amount, to be sure (the deficit is forecast to be £120.9bn this year), but hardly to be sniffed at. Indeed, it's precisely this argument that the government makes when justifying "tough" measures such as the "bedroom tax" (which it is hoped will save £465m a year): every little helps. 

Osborne claims that the reduction in the top rate to 45p will cost the government just £100m but, once again, this is based on an anomalous year's data. Having brought forward their income in order to avoid the 50p rate in its first year, the rich have now delayed it in order to benefit from the reduction to 45p (again, a trick they can only play once) this year. The reality is that the cost of scrapping the rate is likely to be far higher, with up to £3bn in revenue forsaken. But as I show below, even if we accept the anomalous figure of £1bn, a significant number of the welfare cuts introduced by the government could have been avoided if the 50p rate had remained in place. 

The "bedroom tax"

The measure, which will see housing benefit cut by 14 per cent for those social housing tenants deemed to have one spare room and by 25 per cent for those with two or more, is forecast to save £480m - less than half of the yield from the 50p rate. 

It will cost 660,000 tenants an average of £14 a week or £728 a year. Exemptions have been introduced for 5,000 foster carers, some armed forces families and families with severely disabled children - but not families with a severely disabled adult

Estimated saving: £465m a year.


Council tax support cut by 10 per cent

The retention of the 50p rate could also have paid for the reversal of the 10 per cent cut in council tax support, which is forecast to save up to £480m a year. The measure will cost 1.9 million families who do not currently pay council tax an average of £140 a year. In addition, 150,000 low income families will pay on average £300 more a year.

I've written about the policy in greater detail here (Will this be the coalition's poll tax moment?).

Estimated saving: £480m a year. 


Legal aid cuts

Alternatively, the 50p rate could have prevented the lowering of the cut-off point for legal aid to a household income of £32,000 and the introduction of a means-test for those earning between £14,000 and £32,000. 

Estimated saving: £350m.


1% cap on benefit increases

Around half of the revenue raised by the 50p rate in its first year could have allowed the government to uprate benefits in line with inflation (which stood at 2.2 per cent in September 2012, the month traditionally used to calculate benefit increases), rather than by just 1 per cent. 

Estimated saving: £505m in 2013-14.

George Osborne scrapped the 50p tax rate in his 2012 Budget after it raised "just a third of the £3bn" expected. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

Getty Images.
Show Hide image

David Cameron seeks a "clear majority" for air strikes in Syria as Jeremy Corbyn signals his opposition

The Labour leader warns military action will increase the threat to the UK. The PM argues it will reduce it. 

There is a Commons majority for air strikes against Isis in Syria - but Jeremy Corbyn will not be part of it. That was clear from David Cameron's statement on the need for military action and Corbyn's response. Cameron's most significant argument for intervention was that the threat to the UK from terrorism would only increase if it failed to act. The intelligence services, he said, had warned that Britain was already in the "top tier" of countries targeted by Isis. It was inaction, rather than action, that was the greatest risk.

Corbyn's response, consisting of seven questions, signalled that he does not share this view. Citing Afghanistan, Iraq and Libya, he quoted Barack Obama on the danger of "unintended consequences". His question on the risk of terrorist attacks in the UK and of civilian deaths in Syria showed that he believes both will be increased by UK air strikes. Yet a significant number of Labour MPs and shadow cabinet members share Cameron's view. Corbyn must now resolve by Monday whether to offer his party a free vote on the issue or whether to whip it against intervention (at the likely cost of frontbench resignations). The third option: Corbyn voting for air strikes seems unthinkable. 

Cameron, who was responding to the recent foreign affairs select commitee report opposing action, had made a multipronged case for intervention. He argued that the UK could make a unique military contribution through its Brimstone precision missiles (more accurate than those of any country), that there was a moral and strategic imperative for Britain to support its allies, the US and France; that a political process was underway (but action was needed before it concluded); that the threat from Isis would grow in the absence of intervention; that the UN resolution passed last week provided legal authorisation (along with the right to self-defence); that 70,000 Syrian opposition forces and Kurdish troops could fight Isis on the ground; that the government would contribute at least £1bn to post-conflict resolution; and that the west would not dismantle the Syrian state or its institutions (learning from the error of de-Ba'athification).

In response to Corbyn, Cameron later ruled out the use of UK ground troops. He maintained that "Assad must go" but argued for what he called an "Isil first" strategy. "We have to hit these terrorists in their heartlands now," he concluded.

The political test set by Cameron was to achieve a "clear majority" for military action. He warned that anything less would be a "publicity coup" for Isis. There are increasing signs that Cameron is close to meeting his aim. In response to his statement, Conservative MPs, including Crispin Blunt, the chair of the foreign affairs select committee (who previously opposed air strikes), Ken Clarke and Sarah Wollaston, announced that they would be voting for intervention. But, as Cameron all but conceded, Corbyn will not be. The question facing the Labour leader is how he handles those in his party who intend to do so. 

George Eaton is political editor of the New Statesman.