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  1. Politics
25 January 2014

Why Labour will reverse Cameron’s top rate tax cut

The latest figures from HMRC show that people earning over £150,000 paid almost £10bn more in tax in the three years when the 50p rate was in place. We need to get the deficit down in a fair way.

By Shabana Mahmood

The Tories like to fix the facts to fit the story they want to tell. Only yesterday we saw them desperately pull together dodgy figures to make the ludicrous claim that people are better off under them, despite overwhelming evidence to the contrary. It only served to show just how out of touch they are.

It’s similar to what they’ve done when it comes to the 50p tax rate. David Cameron and George Osborne are desperate to be able to claim the 50p tax raised as little money as possible. That makes it easier for them to justify giving a tax cut to millionaires at a time when ordinary families are facing a cost-of-living crisis. But the decision to cut the 50p rate was a highly political decision, driven not by the evidence but by David Cameron and George Osborne’s desire to give the richest people in our country a tax cut.

The Tory-led government’s own assessment claims the cost of cutting the rate to 45p, excluding all behavioural changes, was over £3bn. To justify the tax cut the Tories argue that most of this potential revenue would be lost as a result of tax avoidance.  But crucially, the scale of the behavioural impact has been decided by Ministers, not HMRC. And latest figures from the HMRC show that people earning over £150,000 paid almost £10bn more in tax in the three years when the 50p rate was in place than was estimated at the time when the government did its assessment back in 2012.

The Tories also claim that tax revenues rose after they cut the top rate of tax. But the ONS and OBR have both said that many of the highest earners moved income and delayed bonuses by a year after George Osborne’s 2012 Budget in order that they could benefit from the lower top rate of tax. This shifting of income will actually have cost the Treasury millions of pounds in lost revenue.

Labour has been clear that when the deficit is high and ordinary families are seeing their real incomes fall, it simply can’t be right for David Cameron and George Osborne to give the richest people in the country a massive tax cut. So the next Labour government will make changes to create a fairer tax system. That means cracking down on tax avoidance, scrapping the shares for rights scheme and reversing the tax cut for hedge funds. We want a lower 10p starting rate of tax, which would help make work pay and cut taxes for 24 million people on middle and lower incomes.

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And in order to ensure that those with the broadest shoulders bear a fairer share of the burden, Ed Balls has today announced that the next Labour government will reverse the Tory top rate tax cut in the next Parliament while we are finishing the job of getting the deficit down.

This is a fairer way to reduce the deficit. And the Tories will have to explain why the richest one per cent of earners should get a tax cut while tough times continue for everyone else.

Shabana Mahmood is shadow exchequer secretary

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