Who to believe on the 50p income tax debate?


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Lies, damn lies and HMRC statistics are in the armoury of both the Tories and Labour when they go into battle over the 50p tax rate.

Shadow chancellor Ed Balls, in what will be a populist move, has said Labour will reinstate the 50p income tax rate for those earning £150,000 or more a year, reversing current chancellor George Osborne's boo hiss moment when he cut the richest some slack at reduced the top rate of tax to 45p.

When Osborne cut the rate in 2012 his argument was that a 50p tax rate is squashing entrepreneurial drive, increasing tax avoidance and turning Britain into a leper as no businesses and their executives wanted to come here.

At the time HMRC said cutting the rate to 45p would reduce revenues by £3.5 billion in 2015/16 if there was no behavioural change – i.e. our highest paid fled the country. But it expected a behavioural change that would mean a cut I revenue of just £100 million – i.e. more people would stay here and pay more tax.

Labour is arguing that the cut in tax for the richest in the country is unfair and that we're missing out on all that lovely income tax because there isn't going to be a huge exodus.

It has used HMRC stats to show those who paid the 50p rate in fact paid £10 billion more than the Tories thought between 2010/11 and 2012/13 tax years.

So where do we stand? Who is right? Both parties seem to be working from the same statistics but using them, unsurprisingly, to back up their own point.

This is a big deal and one that we need to work out, after all the 1% of people who earn £150,000 or more contribute between 25% and 30% of all income tax.

The Institute for Fiscal Studies (IFS) has looked at this conundrum and, to be honest, it's also a little stumped. On one hand it says there is little evidence to suggest a 50p rate would raise more than was originally estimated but there is 'uncertainty around HMRC's estimates' because they were made 'at great speed on the basis of one year's data'.

As it has to give a conclusion, the IFS sides with the Tories, saying that a 50p tax rate won't on the whole do much for the Treasury's coffers.

I say, we make HMRC re-do the job so that we can rely on the data and then all we have to watch out for is politicians' lies and damn lies.