As always the Red Book published at the time of the last budget rests unread by many MPs and commentators. In it is the following interesting figures:
Revenue from self assessment Income Tax
2011-12 £20.1 billion
2012-13 £22.3 billion
2013-14 £22.9 billion
2014-15 £28.5 billion
Self assessment tax receipts are dominated by receipts from higher rate taxpayers. 2011-13, when they average £21.2 billion a year , is in the period of the 50%tax rate. 2013-15, when they average £25.7 billion, is a period of the lower 45p rate.
The figures also include, of course, the impact of the reduced allowances on the tax revenue, which the Treasury forecasts to increase revenues by £490 million in 2014-15, but to have no impact in 2013-14. So if we exclude that effect, the average Self Assessment revenue for the second two year period comes out at £25.45 billion, still £4.25 billion higher per year than at the 50p rate.
So according to the government they will average £4.25 billion a year more at the 45p tax rate they are currently averaging at the 50p tax rate. It is of course possible that the government’s forecasts are wrong. Revenue may be lower in 2014-15 than they suggest. It is even more likely the revenue loss from the 50p rate in the last year of that rate will be bigger than they think, making the revenue gain from the lower rate that much larger.
It is difficult to marry these figures with the Red Book claim that they will lose £100 million of revenue from the rate change,which they say will be offset several times over by the changes to the allowances and the Stamp Duty on expensive properties.
On any normal basis you would say that cutting the rate seems to yield £4 billion more annual revenue, averaging two year figures in each case to try to deal with the shifting of income phenomenon. Presumably the official statisticians ascribe a high amount of the increase to their forecast of economic growth. It is difficult to believe tax revenues will leap as much as they suggest just from an increase in the growth rate. I suspect they underestimate the changes of behaviour these rate changes induce.