Don't fall for the Tories' spin over the 45p rate

Why the increase in tax revenues doesn't prove that the coalition was right to scrap the 50p rate.

The Treasury is busy spinning the latest income tax receipt figures as proof that it was right to abolish the 50p rate. Last month the new top rate of 45p raised £11.5bn, £1.3bn more than its predecessor. So, has Art Laffer (of the eponymous "curve") been vindicated? Do lower rates, as the right has long claimed, produce higher revenues? Not quite. The spike in tax receipts is most likely due to the income shifted from last year to this year in order to benefit from the lower rate. As the Institute for Fiscal Studies notes: "Receipts in April will have been boosted by high income individuals shifting income such as bonuses and special dividends from 2012–13 to 2013–14 in anticipation of the fall in the top rate of income tax from 50 per cent to 45 per cent". 

This, of course, is a trick the rich can only play once (unless the rate is reduced again), just as, in the opposite direction, they shifted £16bn into the previous tax year when the rate was still 40p (the real reason that the 50p rate raised less than forecast, although a £1bn isn't to be sniffed at). There was never a "normal" year of the 50p rate. This, of course, was precisely Osborne's intention. Having falsely claimed that the (anomalous) first year of the 50p rate proved that it was ineffective, he will now use the (anomalous) first year of the 45p rate to argue that he was right to scrap it. How much would the 50p rate have raised? We'll never know; Osborne cancelled the experiment at birth. 

The 45p rate may well raise more in the months ahead but we'll have no means of detaching this from any concurrent increase in growth. But don't expect that to stop Osborne declaring victory in the 2014 Budget.

George Osborne arrives to attend a press conference at the conclusion of the IMF UK mission. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

Photo: Getty
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Gerald Kaufman dies aged 86

Before becoming an MP, Kaufman's varied career included a stint as the NS' theatre critic.

Gerald Kaufman, the Labour MP for Manchester Gorton and former theatre critic at the New Statesman, has died.

Kaufman, who served as the MP for Manchester Gorton continuously from 1970, had a varied career before entering Parliament, working for the Fabian Society in addition to his flourishing career in journalism and as a satirist, writing for That Was The Week That Was and as a leader writer on the Mirror. In 1965, he exchanged the press for politics, working as a press officer and an aide to Harold Wilson before he was elected to parliament in 1970.

Upon Labour’s return to office in 1974, he served as a junior minister until the party’s defeat in 1979, and on the opposition frontbenches until 1992, reaching the position of shadow foreign secretary. In 1999, he was chair of the Man Booker Prize, which that year was won by JM Coetzee’s Disgrace.

His death opens up a by-election in Manchester Gorton, which Labour is expected to win. 

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