Borrowing figures show how Osborne allowed thousands to avoid 50p tax rate

The spike in tax receipts was caused by individuals deferring income and bonuses to benefit from the new 45p rate, not a surge in earnings.

The latest borrowing figures are being trumpeted by the Tories as evidence of the success of George Osborne's economic plan, with tax receipts up by 7% compared to last year. But what they won't mention is that this spike has more to do with high earners avoiding the 50p tax rate than it does with any rise in earnings. By deferring income and bonuses from 2012 until this year to take advantage of the new 45p rate, taxpayers have caused a £2.9bn increase in receipts. But with earnings growth of just 0.7% in the most recent month, it's far from certain that this improved trend will continue. 

As the OBR notes in its commentary on the figures: 

Growth in both income tax and NICs for the year-to-date is above the full year forecasts, but this largely reflects the fact that receipts in the first few months of the year benefited from the deferral of some income/bonuses to take advantage of the reduction of the additional rate of income tax to 45p and some temporary effects in non-PAYE income tax. Prospects for PAYE and NIC receipts growth will depend on the feed-through from the low growth in average weekly earnings in the latest data.
The IFS similarly warns
It is important to note that some of the strong growth in receipts observed earlier in the year may not be expected to persist for the rest of the financial year, as it may be the result of some high income individuals pushing part of their income from last year into the beginning of this tax year in order to take advantage of the reduction in the higher rate of income tax.
And with individuals paying tax at 45p, rather than 50p, the Exchequer is left out of pocket. Osborne's stated justification for abolishing the 50p rate was that, due to mass avoidance, it raised "just a third of the £3bn" expected. But while it's true that £16bn of income was shifted into the previous tax year  - when the rate was still 40p - this was a trick the rich could only have played once. And as the government has acknowledged on other occasions, tax avoidance isn't an argument for cutting tax, it's an argument for stopping avoidance. 
 
Having falsely claimed that the (anomalous) first year of the 50p rate proved that it was ineffective, the Tories are now using the (anomalous) first year of the 45p rate to argue that they were right to scrap it. We'll never know how much the 50p rate would actually have raised - and that is just as Osborne intended. 
 
Shadow chief secretary to the Treasury Chris Leslie said: "It’s significant that the OBR has pointed out that very high earners delayed their bonuses to take advantage of David Cameron’s top rate tax cut.

"While this artificially boosts this year’s borrowing figures, overall the Treasury will have lost millions of pounds as a result of the highest earners deferring income to pay tax at a lower rate."

"This is yet more proof that David Cameron stands up for the wrong people. While those at the top are reaping the benefits of a huge tax cut, ordinary people on middle and low incomes are seeing their living standards fall."

George Osborne speaks at the Conservative conference in Manchester last month. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

Photo: Getty
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RMT poised to rejoin the Labour Party

The transport union is set to vote on reaffiliation to the party, with RMT leaders backing the move.

Plans are being drawn up for the RMT (the National Union of Rail, Maritime and Transport Workers) to reaffiliate to the Labour Party in the wake of Jeremy Corbyn’s significant gains in the general election, the New Statesman has learnt.

The union, which represents tube drivers and other workers across the transport sector, was expelled from the Labour Party under Tony Blair after some Scottish branches voted to support the Scottish Socialist Party instead.

But the RMT endorsed both of Corbyn’s bids for the Labour leadership and its ruling national executive committee backed a Labour vote on 8 June.

Corbyn addressed the RMT’s annual general meeting in Exeter yesterday, where he was “given a hero’s welcome”, in the words of one delegate. Mick Cash, the RMT’s general secretary, praised Corbyn as the union’s “long-term friend and comrade”.

After the meeting, Steve Hedley, assistant general secretary at the RMT, posted a picture to Facebook with John McDonnell. The caption read: “With the shadow chancellor John McDonnell arguing that we should affiliate to the Labour Party after consulting fully and democratically with our members”.

The return of the RMT to Labour would be welcomed by the party leadership with open arms. And although its comparably small size would mean that the RMT would have little effect on the internal workings of Labour Party conference or its ruling NEC, its wide spread across the country could make the union a power player in the life of local Labour parties.

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

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