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.

And

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. 

Or

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.

Or

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.

Photo: Getty
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Paul Nuttall is like his party: sad, desperate and finished

The party hope if they can survive until March 2019, they will grow strong off disillusionment with Brexit. They may not make it until then. 

It’s a measure of how far Ukip have fallen that while Theresa May faced a grilling over her social care U-Turn and Jeremy Corbyn was called to account over his past, the opening sections of Andrew Neill’s interview with Paul Nuttall was about the question of whether or not his party has a future.

The blunt truth is that Ukip faces a battering in this election. They will be blown away in the seats they have put up a candidate in and have pre-emptively retreated from numerous contests across the country.

A party whose leader in Wales once said that climate change was “ridiculous” is now the victim of climate change itself. With Britain heading out of the European Union and Theresa May in Downing Street, it’s difficult to work out what the pressing question in public life to which Ukip is the answer.

Their quest for relevance isn’t helped by Paul Nuttall, who at times tonight cast an unwittingly comic figure. Pressing his case for Ukip’s burka ban, he said earnestly: “For [CCTV] to work, you have to see people’s faces.” It was if he had intended to pick up Nigel Farage’s old dogwhistle and instead put a kazoo to his lips.

Remarks that are, written down, offensive, just carried a stench of desperation. Nuttall’s policy prescriptions – a noun, a verb, and the most rancid comment underneath a Mail article – came across as a cry for attention. Small wonder that senior figures in Ukip expect Nuttall to face a move on his position, though they also expect that he will see off any attempt to remove him from his crown.

But despite his poor performance, Ukip might not be dead yet. There was a gleam of strategy amid the froth from Nuttall in the party’s pledge to oppose any continuing payment to Brussels as part of the Brexit deal, something that May and Corbyn have yet to rule out.

If May does manage to make it back to Downing Street on 8 June, the gap between campaign rhetoric – we’ll have the best Brexit, France will pay for it – and government policy – we’ll pay a one-off bill and continuing contributions if need be – will be fertile territory for Ukip, if they can survive as a going concern politically and financially, until March 2019.

On tonight’s performance, they’ll need a better centre-forward than Paul Nuttall if they are to make it that far. 

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to British politics.

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