Which of Mr Osborne’s tax changes has brought in most extra revenue?

 

The answer is the cut in top rate of Income Tax from 50p to 45p. (apart from the initial VAT increase).

That should come as no surprise to readers of this site, but will be a shock to many of the conventional pundits who have taken the precaution of not reading the latest HM Revenue and Customs figures which get in the way of their usual prejudice on the topic.

I do not understand where the Treasury got their £100 m cost of the 45p rate from. The Revenue and Customs figures for what actually happened is stunning proof that the tax cut from 50p to 45 has led to a big tax increase on the rich. Total income tax collected from people earning more than £150,000 has surged from £40bn to £49bn this year compared to last. It has more than made up for the loss of tax revenue from lower earners following the big increase in tax thresholds.

The 50p rate was costly. The UK lost high earners overseas, and encountered the ability of rich people to earn less and declare less income when rates are high. The rareified group of people earning more than £2m declared income of £12.2bn in 2012-13, but paid tax on £26 bn of income the following year with the lower rate. This small group of people alone more than paid for the rise in threshold to take many lower earners out of tax altogether.

The top 1% of earners now earn 13% of the income but pay 28% of the total income tax.  The top 5% earn one quarter of the income but pay around half the total income tax. This progressive structure works as long as the government does not get too greedy, setting a higher  rate which means the rich pay less because they either go or they earn and declare less.

The tax revenues generally are not as buoyant as the Treasury and OBR have been forecasting.Income tax, which brought in £152bn in 2011, fell in 2012, and only recovered to £158bn in 2013. This is despite a £9 bn tax hike on the high earners, showing the state is still collecting less from most taxpayers.

I wonder how much more revenue the Treasury would enjoy if the top rate were set at a more competitive rate? I suspect that too would see a further surge in revenue, money the state clearly needs to end the deficit. The very small group of people earning more than £2m a year will pay £10bn of income tax  this year, exactly double the previous year.

 

(These figures are taken from HM Revenue and Customs  Tax Liabilities Feb 2014 edition)

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86 Comments

  1. arschloch
    Posted April 2, 2014 at 5:34 am | Permalink

    Here is Dave this morning crowing that his “proudest achievement” is that he has lifted three million out of paying income tax. Well Dave are they now likely to vote Conservative like the gays after you have allowed them to marry? I doubt it. How about the three million that you have dragged into the 40p band since 2010? So along with a tax cut outlined above, it must be bleeding obvious by now that if you work for a living, pay your taxes and obey the law this government just treats you with contempt. Remember the 45p brigade will contain a lot of really useful people like footballers, pop singers and city boys who will be demanding another bail out when their bets go wrong. Not the sort of people you find at 40p who actually keep the country functioning.

    http://www.dailymail.co.uk/news/article-2594721/Three-million-lifted-paying-income-tax-Cameron-say-rise-basic-rate-threshold-proudest-achievements-embarks-UK-tour-talk-economy.html

    • Jennifer A
      Posted April 2, 2014 at 11:02 am | Permalink

      Arschloch,

      You are quite right. The reality as to who creates wealth in a country is far more blurred than the Conservatives seem to think. It is as much down to the power plant manager as the factory owner.

      Why not tax cuts for all ?

      Because we can never be a low tax economy and for the very same reason that we can never be a carbon cutting one. We keep adding and adding to the burdens on the welfare state.

      Wages in this country aren’t determined by market forces but by state subsidised interventionism.

      It doesn’t matter how much tax we raise – under these arrangements it will never be enough.

      In fact drive the 45p taxpayers away.

      The money only gets used to undermine us anyway.

  2. Mike Stallard
    Posted April 2, 2014 at 6:01 am | Permalink

    Take a look at any leftie website. All it consists of is rights, hand-outs and promises.
    Take a look at any right wing website and there are a lot of demands for less tax.

    You cannot have it both ways. Can you? Can you?

    But I am an OAP who does a little extra teaching work. I turned out to teach immigrants English. Immediately, there was the taxman stepping in and demanding a big cut of my pathetic little wage. What it must be like for ordinary people, I shudder to think.

    Myself I find it much nicer to do voluntary work without money because you are free of all the paperwork and the pittance that remains after tax really isn’t worth it.

    How richer and younger people feel about tax I can only imagine. So all these friendly and humorous little ads must be really counter-productive. Less tax rather than more hand-outs would go a long way to solving this.

    • The Prangwizard
      Posted April 2, 2014 at 8:38 am | Permalink

      I too, am a pensioner. I have a summer job, starting again tomorrow, which I very much enjoy working for Lord (name withheld!) and so if my earnings from all sources exceed £27,100 this year my tax allowance is reduced by £1 for every £2 earned above this figure.

      I would like to know if Mr Redwood considers this tax collecting device to be just. Why was it devised at all? Am I considered to be wealthy when I exceed this level? Is it considered to be an incentive for someone like me to be active and in work or quite the opposite?

  3. alan jutson
    Posted April 2, 2014 at 6:21 am | Permalink

    Do also remember that all of those those with a higher disposable income tend to spend some of it..
    Thus more tax paid in VAT as well.

    Ok some some may be spent on foreign holidays and some on non VAT items, but with more money to spend most people do exactly that with a proportion of it.

    The simple fact is the State has been spending far too much for decades, with its fingers in fartoo many pies, and employing far too many people, in an inefficient manner.

  4. Lifelogic
    Posted April 2, 2014 at 6:31 am | Permalink

    Indeed keeping the 50% (and now the 45%) just for the political appearances was immoral, job destroying and damaging. IHT at 40% and CGT at 28% (on gains that are often not even real after inflation) is also hugely damaging.

    But of course we still have a huge deficit and that too is a form of taxation anyway just deferred.

    The UK has rarely managed to get more than about 40% of GDP off people even when we had tax rates at 78% and even 93%. The absurd complexity of the UK tax system (perhaps the longest and most complex in the World) makes it even more inefficient, diverting people from real& productive jobs to become tax advisers, tax lawyers or running contrived complex tax structures to avoid tax or pay it on lower tax areas.

    They just need to stop wasting the vast sum of money the waste when will they do this.

    The green crap subsidies, the feckless augmentation of, the incompetence in computer systems, MOD procurement, the pointless damaging wars, the wasteful lefty BBC, HS2, the incompetent NHS, the second rate schools ………………… it is endless.

    If not you just end up with the black market, the rich leaving and nearly everyone else on benefits.

    We need a tax system that get as many as possible to do real and productive work and gets rid of paper pushers, tax planners, bureaucrats and lawyers as far as is possible. Release them all to get a real and productive job as builders, engineers, doctors, nurses, road builders ……

    • Lifelogic
      Posted April 2, 2014 at 1:33 pm | Permalink

      I heard some politician on radio for suggesting that climate realists were like the “monster raving loony party”. When will these people realise, as most sensible scientists already do, that it is the alarmists like Davey, Huhne, Cameron that are on the loony side of the debate.

      Can we please have a debate between Prof Lindzen & Tol against Ed Davey/Tim Yeo/Cameron/Greg Clarke types. It would be a walk over for the realists. Rather like Clegg and Farage they alarmist or pro EUists have no sensible arguments to make.

      And now we are to have Chinese medicine and acupuncture hobbies to be funded by the NHS, together with boob jobs, hymen repairs and other vanity surgery.
      Is there no end to the uses they will find for other peoples money?

      Which side are the alarmists nearly always on (Prince Charles/Davey/Huhne/Cameron/Dr Rowan Williams types) – they are on the side of faith, irrational beliefs, the anti science, future or after death scares and the anti evidence side of the debate.

      We have never lived in better times than now but still they predict doom!

  5. Jim
    Posted April 2, 2014 at 6:43 am | Permalink

    How about setting tax rates at 0%. I realise that is a shocking idea to many in this country. To not steal money from people and allow them to keep 100% of their own money without being mugged is a whole new concept and would mean that people would actually need to be responsible for their own actions. No nanny state running our lives, private education and health care universally, charity delivered not by theft from tax cattle but by genuinely generous people. A big shock especially to those that live at other people’s expense and those that do not produce anything of value (bureaucrats). I wonder what it would be like to not have 50% plus of our money stolen and be able to afford to pay for schools or doctors appointments from our own money. No layer of parasites taking a rake off from every tax pound.
    A whole new world where theft is not regarded as acceptable if it’s done by government flunkies, one where politicians don’t boast about how much they can extract from their cattle.

    • Narrow Shoulders
      Posted April 2, 2014 at 9:57 am | Permalink

      An interesting premise but you need to pay for defence of the realm and law enforcement (the original reasons for tax). I would also advocate educating the masses to a reasonable level so they do not need to steal from you to eat (a whole new argument about benefits in that statement). A level of healthcare should be given so that the country does not become disease ravaged.

      Generally I agree with you other than the above areas and a small stipend for lawmakers who should be chosen annually by lottery draw rather than votes which requires greater funding to run.

      Taxation could be drastically reduced for all not just the few at both ends.

      • Lifelogic
        Posted April 2, 2014 at 9:09 pm | Permalink

        20% of GDP is about right we need law and order and defence. 20% is more than enough for that plus schools, roads, democracy and even a re-organised and more efficient NHS.

        There is so much fat and pointless activity to be cut.

    • The PrangWizard
      Posted April 2, 2014 at 6:26 pm | Permalink

      At the opposite end of taxation 0% where people are free, if we are taxed at 100% and the state provides, we automatically become slaves, state slaves.

  6. Richard1
    Posted April 2, 2014 at 7:04 am | Permalink

    Another set of robust data supporting the Laffer Curve phenomenon. Can leftists deny it any longer? Conservatives should make more of this. A reduction in CGT would have a similar beneficial effect. Lower tax rates = higher tax receipts to spend on public services. A lower tax take as a proportion of GDP = higher growth and greater prosperity. Its a very simple message.

    • zorro
      Posted April 2, 2014 at 5:51 pm | Permalink

      Indeed, where is uanime5 who usually pipes in around now…?

      zorro

    • uanime5
      Posted April 2, 2014 at 7:18 pm | Permalink

      Another set of robust data supporting the Laffer Curve phenomenon. Can leftists deny it any longer?

      The Laffer Curve states that if taxes are too high or too low maximum tax revenues won’t be achieved. Therefore cutting taxes may result in a loss of taxes revenues.

      Lower tax rates = higher tax receipts to spend on public services. A lower tax take as a proportion of GDP = higher growth and greater prosperity.

      Few people are stupid enough to believe that lowering taxes any further will result in more tax revenues, especially since the optimum tax rate for the Laffer Curve has been calculated to be 40-70%.

      • Richard1
        Posted April 3, 2014 at 12:49 pm | Permalink

        You have no basis to assert that at all. In the UK over the last 35 years since the beginning of the Thatcher revolution, in the teeth of leftist opposition and denial, whenever tax rates have fallen, receipts have risen. This is just the latest example. With income tax at a relatively high 47% marginal rate and CGT at a relatively high 28%, there is every reason to believe cuts in rates would bring in incremental receipts.

        The facts just don’t suit the Left – too bad for you.

  7. Narrow shoulders
    Posted April 2, 2014 at 7:17 am | Permalink

    What this proves is that PAYE captives are tax slaves whereas the wealthy can pick and cboose what tax they pay depending upon their cashflow requirements.

    PAYE is a most unfair form of servitude and government sbould reduce is spending

    • margaret brandreth-j
      Posted April 2, 2014 at 8:05 am | Permalink

      I agree, not merley because of the nature of the tax , but due to the way it is collected and the abuse it is open to.

      • margaret brandreth-j
        Posted April 2, 2014 at 8:05 am | Permalink

        merely

    • Lifelogic
      Posted April 3, 2014 at 3:26 pm | Permalink

      Indeed the main reason for PAYE is so that people do not realise how much they pay also the reason of NI and Income Tax. If people had to pay it all at the end of the year they would rebel far more.

      Petrol pumps should are say 70% of this fuel bill goes straight to Osborne to waste on Greencrap, pointless wars, HS2, expenses for Maria Miller etc.

  8. oldtimer
    Posted April 2, 2014 at 7:26 am | Permalink

    “I do not understand where the Treasury got their £100 m cost of the 45p rate from.” you ask. Answer: probably from the research departments of the Labour and/or LibDem parties whose job it is to make this stuff up. It feeds the politics of envy which, as you so clearly point out, is utterly counter-productive.

    What is true of income tax rates is true of the CGT rate which, at 28% of un-indexed gains, is outright robbery of long term savers. The rate needs to return to the Darling rate of 18%.

  9. Matt
    Posted April 2, 2014 at 7:41 am | Permalink

    There is, I think, a case to be made that during periods of high income tax rates, income may be deferred by the wealthy rather that genuinely avoided in anticipation of future lower income tax rates. If that were the case here, there would naturally be a drop in revenue for a few years after an increase in the rate which might later be recovered when high earners realised that it was here to stay. There would also naturally be a short term boost in revenue when the income tax rate drops from those who had been holding back in anticipation of the drop.

    Myself I suspect that this is a relatively small effect in the case of the UK, but I wonder if there is any way to separate out the 2 effects of temporary drops and surges from sustained changes in revenue. It would rather help win the argument for basing tax rates on the Laffer curve if this could be definitively shown. Then we would be left arguing only with those who insist that the Laffer curve peaks at 100%.

    I doubt it matters much to those with socialist tendencies anyway. A high top rate of income tax is a moral imperative and the goal seems to be not to improve the lot of the poor, but to equalise society.
    A typical conservative would, I suspect, argue that the goal of government should be improve the living standards of the poor in absolute terms and that the living standards of the very wealthy should only be reduced if it serves that goal.
    A non-conservative will, in my experience, refuse to believe that there is a limit to the usefulness of redistribution in improving the lot of the poor and often finds such an idea offensive and ridiculous no matter the evidence. In fact I would go further and say that by retarding the economy, excessive redistribution routinely achieves the precise opposite of its goal and holds back progress in improving the lot of the poor.

    Reply I have set out the long etrm case several times before. In the 1980s at much higher rates (83%/98%) high earners contributed 11-13% of total income tax, where today at much lower rates they contribute 28%.

    • Richard1
      Posted April 2, 2014 at 8:33 am | Permalink

      On the Today Programme this am a very soft interview was given to some absurd new book by a French economist on that favourite subject for the left ‘inequality’. He promoted the idea of very high income taxes (> 80%), high wealth taxes etc, and came up with the ludicrous theory that tax rates need to be set at such a level that returns on investment cant be higher than GDP growth! It being the BBC no attempt was made to question this nonsense (such as asking how high taxes have worked out for the French economy in the last few years).

      This was followed by en equally contrived discussion, also presided over by the leftist Evan Davis, in which some global warming enthused MP asserted that the BBC is too balanced between sceptics and believers in AGW. A BBC panjandrum was brought on to agree with the MP, and no attempt was made to put the alternative argument. In an interesting vignette the panjandrum said that a debate between Lord Lawson and climate scientist Sir Brian Hoskyns had not ‘come out as it was meant to’. Presumably that is because (as those who heard the interview will attest), Lord Lawson got the better of Sir Brian, who was unable to answer Lord Lawson’s sceptical points.

      No wonder these leftists don’t like real debate. The facts just don’t suit them.

      • matt_us
        Posted April 2, 2014 at 4:04 pm | Permalink

        Yes, France has a wealth tax and it is better off than the UK. Since 2005 It GDP per head (ion PPP) stayed the same, and in the UK it has fallen by 15%!

        http://epp.eurostat.ec.europa.eu/tgm/table.do?tab=table&init=1&plugin=1&language=en&pcode=tec00114

        So what is the problem?

        Why is setting tax rates to decrease investment return to below economic growth rates not a good idea? etc

        • Richard1
          Posted April 2, 2014 at 5:20 pm | Permalink

          Hmm that’s a toughie, I wonder whether anyone’s got a bright answer for you? How about: there might be a bit of a difficulty attracting investment, risk taking, entrepreneurship and innovation?

    • Matt
      Posted April 2, 2014 at 8:45 am | Permalink

      Indeed you have. But surely the world is a much different place now with greater freedom of people and business to move from one nation to another. I would expect that a rate much higher than 50% would have a far more devastating effect on the economy now that it did in the 1980s.

      I wonder where the peak of the Laffer curve is for the UK. In terms of business rates, capital gains and income tax. Presumable much lower than they are now.

      What about tax rate competition between nations? If we lower our rates and start pulling in talent and business from overseas, surely other first world nations would eventually respond by doing the same and that would partially negate the effect on UK tax revenue.
      In the presence of such tax rate competition, using the Laffer curve to determine tax rates would shift the peak of the Laffer curve toward still lower rates. Would increased economic growth from the lower rates fully compensate for this?

      • uanime5
        Posted April 2, 2014 at 7:42 pm | Permalink

        But surely the world is a much different place now with greater freedom of people and business to move from one nation to another.

        While it’s easier to move to another country it’s not that easy to find a job that will pay a high salary by UK standards.

        If we lower our rates and start pulling in talent and business from overseas, surely other first world nations would eventually respond by doing the same and that would partially negate the effect on UK tax revenue.

        Which is why the EU proposed harmonising corporation tax laws so that all the EU countries won’t engage in a race to the bottom. Something Cameron objected to even though it would increase the amount of taxes the UK collects by several billion each year.

    • uanime5
      Posted April 2, 2014 at 7:38 pm | Permalink

      I doubt it matters much to those with socialist tendencies anyway. A high top rate of income tax is a moral imperative and the goal seems to be not to improve the lot of the poor, but to equalise society.

      How exactly does equalising society make the poor worse off? Studies have shown that the poor have a better quality of life and higher aspirations in societies which are more equal.

      Reply I have set out the long etrm case several times before. In the 1980s at much higher rates (83%/98%) high earners contributed 11-13% of total income tax, where today at much lower rates they contribute 28%.

      High earners pay a larger percentage today because of a massive increase in income equality.

      • libertarian
        Posted April 3, 2014 at 2:02 pm | Permalink

        Maths not your strong point either then Uanime5

        No wonder you’re still unemployed

  10. acorn
    Posted April 2, 2014 at 8:56 am | Permalink

    The answers are in the text. For instance:-

    “While these assessments are subject to significant uncertainties this probably represents a temporary reduction in incomes below ‘normal’ levels in 2011-12, the counterpart of the bringing forward or ‘forestalling’ of income in 2009-10 by individuals affected by the introduction of the additional rate of tax in April 2010. Income forestalling was estimated by HMRC at around £16-18 billion or 2% of total taxpayer income among broadly the richest 1% in 2009-10. Details of these effects were set out in an HMRC report.”

    Effectively the reduction to 45p tax rate was backdated two years by forestalling the income of the richest 1%; that is, Conservative Party friends and sponsors. The rise of £9 billion you headline, is probably, at a guess, less than half of what it should have been.

    Please don’t tell me we have another fourteen months of this type of bullshit posts.

    Reply When Conservatives cut the top rate from 83% to 60% then to 40% tax revenues continued to rise long after the first year of the cut.

  11. Bert Young
    Posted April 2, 2014 at 9:00 am | Permalink

    Get rid of Income Tax altogether and replace the need for revenue on Indirect Taxation ( e.g. on Purchases ). The cost of implementing Direct Taxation is very high whereas collecting it at the point of a sale is low . Years ago I participated in a study of Taxation in Bermuda led by Sir Harold Mitchell ; at that time the report concluded that it would cost as much as 75% of the revenue in administration and other variables leaving only 25% for the Government ; Direct Taxation was rejected . I suspect the same conditions would apply here .

    • uanime5
      Posted April 2, 2014 at 7:43 pm | Permalink

      The problem with indirect taxation is that it results in the poor paying more taxes, while the wealthy get a massive tax cut (unless all the indirect taxes are on luxury items and expensive properties).

      • libertarian
        Posted April 3, 2014 at 2:07 pm | Permalink

        Oh dear Uanime5

        You are so detached from reality that its scary. Do wealthy people not buy lots of day to day things with vat on them? Do wealthy people not buy petrol for their gas guzzlers? I think you’ll find that having large amounts of money is absolutely pointless unless you spend it and as soon as you do that you pay tax and duties. I’ve spent more on VAT and duty this year than the average person earns in salary and I’m not that wealthy so you are just plain wrong. As normal

    • Chris S
      Posted April 2, 2014 at 9:26 pm | Permalink

      You cannot just pile all the tax take on VAT.

      The government has to keep tax rates just about acceptable to the majority of citizen. Once the citizen starts to feel the rates are unfairly high they start to take avoidance methods and the higher the rates the more evasion takes place. The end result is a black economy like that that exists in countries like Italy and Greece.

      We currently have so many different taxes on every conceivable human activity because the overall tax take has risen so dramatically since 1997.

      Arguably VAT at 20% is already at the top end of the very highest range the population will accept.

      There is already widespread avoidance in the domestic building sector and amongst small tradesmen cash jobs are now the norm. Have a look at the price ticket on that nice new car you are interested in and you might change your mind when you see how much you are paying in VAT. Remember the VAT rate used to be just 8% !

      To transfer the £152bn collected in income tax to VAT it would be necessary to increase the VAT rate to 33%

      The rate would actually have to be considerably higher than that because avoidance and evasion would increase dramatically.

      A VAT rate of 35% or more would simply lead to evasion on a massive scale.
      Like with the 50% tax rate, the overall tax take would be therefore be significantly reduced.

  12. Ken Hall
    Posted April 2, 2014 at 9:16 am | Permalink

    Perhaps I am a bit thick, or old fashioned, but I have never managed to understand why wanting to keep more of the money you have worked hard to earn is considered greedy, but demanding more money from other people who have earned it, through increasing their tax, is not.

    Also, when this country was the world’s biggest trader and richest nation on earth, there was no direct state welfare, nor was there any income tax.

    Now we take money from people who work, to pay other people to not work. That cannot make any sense if we want people to work and contribute.

    • uanime5
      Posted April 2, 2014 at 7:47 pm | Permalink

      Perhaps I am a bit thick, or old fashioned, but I have never managed to understand why wanting to keep more of the money you have worked hard to earn is considered greedy, but demanding more money from other people who have earned it, through increasing their tax, is not.

      For some reason people consider the poor who want to buy food more deserving that the wealthy who want to maintain their private jet.

      Also, when this country was the world’s biggest trader and richest nation on earth, there was no direct state welfare, nor was there any income tax.

      There was also higher levels of crime, homelessness, and infant mortality; along with a lower life expectancy.

      Now we take money from people who work, to pay other people to not work. That cannot make any sense if we want people to work and contribute.

      Unless you can magically create enough jobs for everyone this is the only viable system.

      • libertarian
        Posted April 3, 2014 at 2:12 pm | Permalink

        Uanime5
        Please explain WHY someone buying a jet has ANY impact at all on someone else who wants to buy food? There is NO direct relationship at all.

        Its perfectly possible for Wayne Rooney to buy a jet AND for someone to have more food.

        As I’ve already told you multiple times there are MORE job vacancies than there are unemployed AND if the 700,000 overseas workers weren’t here then there would be even more jobs. So I guess a better analogy would be People would consider the poor who want to buy food are more deserving than those who want to have a federal EU

  13. Gary
    Posted April 2, 2014 at 9:17 am | Permalink

    Mention should be made of the govt revenues squandered by the absolute stitch up of the sale of the Royal Mail. The City spivs made out like bandits on the biggest mis-pricing I have ever seen. This was cyncism at its worse and I hope it costs your party the election.

    Reply Dr Cable (Lib Dem) was in charge, and tells us he was right to be cautious about the price.

  14. Leslie Singleton
    Posted April 2, 2014 at 9:58 am | Permalink

    I agree with everything you say except that I deprecate your use of the word “proof”. Rather I believe that you mean something like, In [your] opinion the numbers probably indicate that etc. It is obvious that there have been other changes involved besides just the change in tax rate. It is very very very similar to the good stuff on climate change: in that case literally 12,000 opinions (by heavily interested writers of papers) with no actual proof worth a damn about what is going to happen in the future. A pox on their models which in any event have been wrong so far,

  15. Vanessa
    Posted April 2, 2014 at 10:12 am | Permalink

    Even Putin understands the thinking behind lower taxes. When he came into government in Russia the country was bankrupt and he REDUCED the tax to 13%. What happened ? The money flooded in.

    A lesson there somewhere !

    • uanime5
      Posted April 2, 2014 at 7:55 pm | Permalink

      Even Putin understands the thinking behind lower taxes. When he came into government in Russia the country was bankrupt and he REDUCED the tax to 13%. What happened ? The money flooded in.

      Where exactly did this money flood in from? Why would businesses invest in Russia because it had a low income tax rate? Could it be that one of the other reforms Putin made to the banks or the economy encouraged people to invest in Russia?

    • Lindsay McDougall
      Posted April 3, 2014 at 1:42 pm | Permalink

      Russia’s financial recovery has in large measure come about because he effectively renationalised the oil and gas industries. Yeltsin and Gaidar had sold them too cheaply.

  16. John E
    Posted April 2, 2014 at 10:27 am | Permalink

    Don’t forget that stamp duty on houses is also at at a prohibitive rate for any home above £250k. That stops people moving house reducing the overall tax take as well as reducing labour mobility and leading to longer commutes for people who can’t afford to move when their job changes.

    Instead of setting the tax logically we have the crazy help to buy schemes. But I digress, yesterday was for the April Fools day posts.

  17. lojolondon
    Posted April 2, 2014 at 10:42 am | Permalink

    I blame the Biased BBC and MSM – such an easy strapline ‘discounts for millionaires’.

    The truth is that Crash Gordon created the 50% rate as a poison pill for the Conservatives to deal with, and it was probably the most damaging thing he ever did, next to selling all our gold, and signing the Lisbon treaty, and destroying the BOE, and guaranteeing all our banks and Iceland’s and Ireland’s banks and taxing pensions and starting wars in the middle east and ….. I wonder why he doesn’t get any bad press??

    • William Long
      Posted April 3, 2014 at 8:52 am | Permalink

      You put your finger on the two great failures of this Government:
      1. Its reluctance (Note I do not say inability) to fix the responsibility for the crash squarely where it belongs, with Messrs Brown and Balls, preferring the easy fix of blaming the bankers for everything. This must be due to feelings of solidarity among politicians of whatever party to protect their number from any blame.
      2. If Cameron is the ‘Heir to Blair’, then Osborne is the spiritual successor to Brown, devoted to petty tinkering and stealth rather than having any vision for a reformed tax system that we so desperately need. When the 50% top rate was imposed and the personal allowance removed above £100k, I can remember no great expression of regret from the Conservative front bench or any promises to remove these impositions. When considering how to vote, high in my mind will be how I can best help the removal of Osborne from the Exchequer.

  18. waramess
    Posted April 2, 2014 at 10:49 am | Permalink

    Every pound taken from the productive sector by the non productive sector results in a negative effect on production. Quite irrelevant whether a lower tax level or a higher tax level achieves this, except to the non productive sector.

    The timid attempt to cut the size of government has caused the need for ever increasing tax revenues which will ensure there is no real recovery.

    Any doubts that might remain over the damaging effect of big government and monetary stimulus of the economy can be clearly seen from the dismal state of our reserves.

    £70 billion of reserves and a 2013 deficit on the balance of payments of over £70 billion.

    Covering only one years deficit with reserves is a real disgrace worthy of only the worst of the lesser developed countries and, the first Q 2014 is an astounding £22 billion.

    Stop looking for the additional pound in order to fund this out of control government and start cutting.

    A good start would be Culture and Foreign Aid with the Environment Agency and Climate not far behind.

    • uanime5
      Posted April 2, 2014 at 7:58 pm | Permalink

      Every pound taken from the productive sector by the non productive sector results in a negative effect on production.

      So providing employees with schooling, healthcare, and transportation links somehow makes the “productive” sector worse off. There’s a reason the “productive” sector demands that someone else pays for these things.

      • libertarian
        Posted April 5, 2014 at 4:07 pm | Permalink

        Uanime5

        All of the rings you mention, where invented, produced and put in place by the productive sector long long before the government came along and took vast amounts of tax to make them worse

    • Lifelogic
      Posted April 3, 2014 at 3:30 pm | Permalink

      Every pound taken from the productive sector by the non productive sector results in a negative effect on production.

      Indeed but some state activities perhaps only 30% of them are productive.

      It is the spending that matters they have to stop the endless waste. Taking of the productive and pissing down the drain on the feckless, green crap subsidies, wars and HS2, parasites ……………..

  19. behindthefrogs
    Posted April 2, 2014 at 10:59 am | Permalink

    I agree that high levels of income tax are unlikely to produce the expected extra revenues. We should be looking at targets that potentially help the lower paid. For example introducing higher bands of council tax, taxing winter fuel allowance and similar benefits. Discouraging multiple property occupancy. Changing single occupancy council tax rebates to a fixed rate based on band C etc.

    While each of these changes may be small, they are also difficult to avoid and so likely to produce the expected revenue..

    • bigneil
      Posted April 2, 2014 at 5:28 pm | Permalink

      “Changing single occupancy council tax rebates to a fixed rate based on band C” . . .Am I misunderstanding your comment? What if a single person is living in a band A property? -are you saying they should be moved two grades up to C? -and council tax paid accordingly? I live in such a situation . .I get NOTHING from the state, after paying in 45 years but retiring early through injury. So I have to live on just my works pension, which is probably less than what some people on here would spend on a tyre for their X5 or Merc. Are you saying that as I sit here with no heating, eating only food that was on the reduced or offer shelves, I should have my council tax increased to pay for all the bone idle workshy immigrants who this govt have given the green light to live here for free? OR – are you saying I should be forced out so a family of the aforementioned can doss here. – -Instead of screwing people for every penny, just so they can carry on with their policies of waste waste waste, they should stop the waste, throw out the freeloaders etc, stop paying £55m a day to the corrupt EU, actually putting the people of this country first – instead of anyone who walks in here demanding their “entitlement” to a free house, money, healthcare and schooling (with translators costs on top), etc ed

  20. JoolsB
    Posted April 2, 2014 at 12:28 pm | Permalink

    Which of Mr. Osborne’s tax changes brought in extra revenue?

    How about the granny tax which has seen the tax take go up for pensioners, especially those on modest incomes. Or how about the ‘graduate’ tax imposed on ENGLAND’s young? Never mind that it will see youngsters in England coming out of university with crippling debts hanging over them for most of their working lives, obviously that’s a price worth paying. Oh no, forgot, it turns out that when a projected 48% default on the debt, many of whom no doubt will be foreigners, the government won’t be saving any money after all, it will actually be losing it. Never mind, better to carry on shafting England’s young rather than scrapping this discriminatory tax and create a more level playing field for our young but that might mean losing face and we can’t have that can we?

    • Anonymous
      Posted April 2, 2014 at 5:37 pm | Permalink

      Jools,

      Don’t forget the impact on British students who are refused their choice of university because education is now ‘one of our best exports’.

      Along with having to take place in a queue for housing and healthcare with others who haven’t paid for it.

  21. forthurst
    Posted April 2, 2014 at 1:24 pm | Permalink

    Off topic, but, apparently, according to the Times, UK Coal is (struggling ed) because of the weakening price of coal as a result of the shale boom in the US (and I strongly suspect, reduced demand because of green insanity); meanwhile, Drax power station spent £700m on converting their power station to burning wood imported from the US which costs far more to transport per kjoule than coal and which is both subsidised and charged out to consumers at higher cost than inland wind. What a pity the product of an indigenous industry employing 10,000 is so price sensitive when its competition here is totally insensitive to economics.

  22. Terry
    Posted April 2, 2014 at 1:32 pm | Permalink

    This item draws me to quote the following analysis.

    AN ELEMENTARY GUIDE TO TAXATION AND ECONOMICS

    Suppose that once a week, ten men go out for beer and the bill for
    all ten comes to £100.If they paid their bill the way we pay our
    taxes, it would go something like this..

    The first four men (the poorest) would pay nothing.
    The fifth would pay £1
    The sixth would pay £3.
    The seventh would pay £7.
    The eighth would pay £12.
    The ninth would pay £18.
    And the tenth man (the richest) would pay £59.
    So, that’s what they decided to do.

    The ten men drank in the bar every week and seemed quite happy with
    the arrangement until, one day, the owner caused them a little
    problem. “Since you are all such good customers,” he said, “I’m
    going to reduce the cost of your weekly beer by £20.? Drinks for the
    ten men would now cost just £80.

    The group still wanted to pay their bill the way we pay our taxes.
    So the first four men were unaffected. They would still drink for
    free but what about the other six men? The paying customers? How
    could they divide the £20 windfall so that everyone would get his
    fair share? They realized that £20 divided by six is £3.33 but if
    they subtracted that from everybody’s share then not only would the
    first four men still be drinking for free but the fifth and sixth
    man would each end up being paid to drink his beer.

    So, the bar owner suggested that it would be fairer to reduce each
    man’s bill by a higher percentage. They decided to follow the
    principle of the tax system they had been using and he proceeded to
    work out the amounts he suggested that each should now pay.

    And so, the fifth man, like the first four, now paid nothing (a 100%
    saving).
    The sixth man now paid £2 instead of £3 (a 33% saving).
    The seventh man now paid £5 instead of £7 (a 28% saving).
    The eighth man now paid £9 instead of £12 (a 25% saving).
    The ninth man now paid £14 instead of £18 (a 22% saving).
    And the tenth man now paid £49 instead of £59 (a 16% saving).
    Each of the last six was better off than before with the first four
    continuing to drink for free.

    But, once outside the bar, the men began to compare their savings.
    “I only got £1 out of the £20 saving,” declared the sixth man. He
    pointed to the tenth man, “but he got £10!”

    “Yeah, that’s right,” exclaimed the fifth man. “I only saved a £1
    too. It’s unfair that he got ten times more benefit than me!”

    “That’s true!” shouted the seventh man. “Why should he get £10 back,
    when I only got £2? The wealthy get all the breaks!”

    “Wait a minute,” yelled the first four men in unison, “we didn’t get
    anything at all. This new tax system exploits the poor!” The nine
    men surrounded the tenth and beat him up.

    The next week the tenth man didn’t show up for drinks, so the nine
    sat down and had their beers without him. But when it came time to
    pay the bill, they discovered something important – they didn’t have
    enough money between all of them to pay for even half of the bill!

    And that, boys and girls, journalists and government ministers, is
    how our tax system works. The people who already pay the highest
    taxes will naturally get the most benefit from a tax reduction. Tax
    them too much, attack them for being wealthy and they just might not
    show up anymore.

    In fact, they might start drinking overseas, where the atmosphere is
    somewhat friendlier.
    Thank you to David R. Kamerschen, Ph.D. Professor of Economics.

    • bigneil
      Posted April 2, 2014 at 5:01 pm | Permalink

      I like your description of the system. If , as you say the rich drinker leaves and goes elsewhere, the income drops, but another point to add on. We have thousands a year coming here who would be in the “free drinks” group. An article on another site shows how much their benefits goes up, just for turning up with their families. We are financially in reverse, borrowing money to give it away. It is absolutely senseless. The government should be ashamed of how good they are at destroying this nation.

    • alan jutson
      Posted April 2, 2014 at 7:15 pm | Permalink

      Terry

      Heard it before, but always good to hear it again, if for no other reason than to believe many may not have heard it before, and thus may think this through with a little more logic to the tax system as it really is.

      Sad fact is with your example in real life some would not just get it for nothing but would actually be plaid to drink !

      • alan jutson
        Posted April 2, 2014 at 7:16 pm | Permalink

        OOps

        not Plaid, but Paid.

    • uanime5
      Posted April 2, 2014 at 8:10 pm | Permalink

      Well that’s an elementary guide because it’s an oversimplification and also completely wrong.

      1) The tax system doesn’t make everyone equal so if the number of beers was divided up based on the income of the 1o men.

      Men 1-4 wouldn’t have any beer.
      Man 5 would have 0.1 beer.
      Man 6 would have 0.3 beers.
      Man 7 would have 0.7 beers.
      Man 8 would have 1.2 beers.
      Man 9 would have 1.8 beers.
      Man 10 would have 5.9 beers.

      So without the 10th man the other 9 would have been able to afford their 4.1 beers.

      2) Man 10 did take an excessive amount of the tax cut because tax cuts only apply to part of your income, not all of your income. For example if the 20% tax rate was reduced to 18% then this would only result in the part of man 10’s income tax that is affected by the 20% band being reduced, not his entire tax bill being reduced by 2%.

      Let’s not forget about the alternative scenario where the barman said that because his bar was doing badly he’d need to increase the amount they paid by £10 and man 10 refused to pay the most simply because he earned the most.

      • libertarian
        Posted April 3, 2014 at 2:17 pm | Permalink

        Ah now we see why you fail to grasp the reality

        Money, taxes beer etc ISN’T divided up. Life isn’t a zero sum game. Just because one person has a large slice of cake DOES NOT mean that someone else gets a smaller bit.

  23. Antisthenes
    Posted April 2, 2014 at 1:34 pm | Permalink

    As you say readers of your site mostly predict quite accurately the consequences of economic policies advocated or implemented by the left. Another example is the minimum wage which improves the standard of living of those in work but makes it possible that some of those in work will lose their jobs and makes it more difficult for those seeking work to find it. The Conservative party now supporting this does not make economic sense but it does electorally are we seeing the right taking a leaf out of the lefts book and promising things that are not good for the country but greatly improves the party’s chances at the polls . I digress the point is as I see it us on the right can see the obvious while those on the left appear never to do so. So how the left can ever be fit for government when they obviously have an ideology that mostly leads bad decisions and choices being made beats me.

    • uanime5
      Posted April 2, 2014 at 8:12 pm | Permalink

      Another example is the minimum wage which improves the standard of living of those in work but makes it possible that some of those in work will lose their jobs and makes it more difficult for those seeking work to find it.

      Given that states in the USA with higher minimum wage laws have lower levels of unemployment it’s clear that your claim isn’t based on evidence.

      • Lindsay McDougall
        Posted April 3, 2014 at 1:48 pm | Permalink

        If we are going to talk about the effect of government interference in the labour and currency markets, please explain why the average unemployment rate in the EU is 12%. Take your time; there’s a lot of explaining to do.

  24. Iain Gill
    Posted April 2, 2014 at 1:57 pm | Permalink

    The reality is that lots of high earners have a choice of whether to engage through PAYE or not. They can just as easily operate as a one man band service limited company, and take money they earn out as dividends and expenses rather than pay. So playing with the higher rates of tax for high earners just cheeses people off so much they transfer to operating as a limited company, or relaxes them enough to make them happy to operate through PAYE. It is pointless changing the tax rates for those on PAYE without adjusting rates payable by one man band limited companies at the same time, as all you do is move folk from one to the other.

  25. matt_us
    Posted April 2, 2014 at 3:48 pm | Permalink

    It is always good to see that when it comes to taxes propaganda always trumps proper research. All the people who could defer their income (or take it early) did of course do that when top tax rates were higher. Hence it looks like there is more tax when tax rates are lower than when they were higher!

    If we go with Redwood’s argument an income tax rate of 0% would produce the greatest revenue!

    Clearly, the biggest revenue would be achieved if we were to tax everybody earning at a top marginal rate of 80%, as research has shown that even at that tax rate there is no impact on effort!

    Does it decrease the total tax take? Obviously not, if all income (dividends, corporation tax) would also be taxed at the 80% rate!

    Now would people leave Britain in droves?

    Probably not, when taxes were that high last time in the 1970s, probably less Brits lived abroad than now!

    What will Redwood tell us next, probably that selling the Royal Mail at two-thirds of its market price, largely to the City bankers who advised on the sale, was good value!

    • libertarian
      Posted April 2, 2014 at 5:20 pm | Permalink

      matt-us

      Congratulations that is the most drivel I’ve read in one post.

      You are just plain wrong and you obviously weren’t around in the 70’s when the tax rate hit those highs. The UK was an awful place to be.

      No one has EVER suggested a 0% tax rate. If you set corporation tax at 80% have you got the remotest idea of how many millions of jobs you would loose.

      April 1st was yesterday

    • zorro
      Posted April 2, 2014 at 6:01 pm | Permalink

      ‘If we go with Redwood’s argument an income tax rate of 0% would produce the greatest revenue!’……..What an extremely silly comment. A 0% income tax rate would produce nothing… :-) How does JR’s argument support this contention?

      zorro

    • Matt
      Posted April 2, 2014 at 6:47 pm | Permalink

      I’m sure I’m not the only one here, but I find this reasoning preposterous.
      Nobody has suggested that any tax cut increases revenue. Just that some do.

      All that Mr Redwood has argued in everything I’ve read is that setting tax rates above the level of peak revenue is bad on every front. A government which does so, loses revenue and retards growth at the same time. Who in their right mind wants that.

      It’s really not all that hard to understand if you bother to read it.
      Extra money is generated when people work hard and/or take risks with the money they have. Each person in the workforce makes judgements about whether striving harder at their work or risking their money is worthwhile. The government is going to take a cut of any extra money they make through their effort and/or risk. How much money they take determines whether that extra effort and/or risk is worthwhile to that person:
      If the government takes 10% of any extra money they make, they’ll almost certainly go ahead as they’ll hardly notice the difference.
      If the government takes 80% of their extra money, then they’ll see little benefit from their extra effort/risk, so why should they bother.
      Somewhere in between there is a sweet spot where few people will be deterred from extra effort and/or risk, but the government is taking a big enough cut that they can provide truly excellent public services. That’s what you aim for. The Laffer curve, which may (including myself) have referred to here, is the graphical/mathematical description of that effect.
      There is also a second order effect these days where the wealthy find it rather straightforward to switch nations and this makes the effect all the more pronounced.

      100% of nothing is nothing
      of course 0% of massive amount of also nothing
      80% of very little is almost nothing
      40% of a huge amount is a bucket load

      There are legitimate arguments to be made about what tax rate for CGT, income, business profits etc is optimal for government revenue. And still more about the usually lower rates ideal for economic growth and therefore future government revenue.
      But these are arguments about where the peak is. Not whether it exists. Nobody in their right mind thinks you can set a tax rate of 100% and expect to get any money out of it. Some moderate socialists think it’s at 50% or even 60% income tax. They’re wrong, but it’s not a ridiculous point of view. But you’re not arguing that. You’re dismissing, against all the evidence, the idea that such a peak exists.

      The only way to make ridiculously high tax rates work is to prevent people from leaving and force them to work harder. That’s been tried too. It still didn’t work.

      Look at the evidence of history. Look at common sense. Learn some maths at least.

      • matt_us
        Posted April 3, 2014 at 10:47 am | Permalink

        “If the government takes 10% of any extra money they make, they’ll almost certainly go ahead as they’ll hardly notice the difference.
        If the government takes 80% of their extra money, then they’ll see little benefit from their extra effort/risk, so why should they bother.”

        Research suggests that the Laffer curve peaks at around 80%. Entrepreneurs would still invest if that was the only way to get 20% extra money (as 80% is taxed) and there were no other tax loop holes.

        Redwood suggests there is high income tax take, at low rates. Surely, that is bad for the economy, as high tax take is generally bad.

        A position I agree with, as taxes take money out of circulation in an economy and the money supply falls. High tax take is deflationary.

        If we want low tax take, we would want higher income tax rates.

        • libertarian
          Posted April 3, 2014 at 2:23 pm | Permalink

          Matt-us

          Total garbage, you haven’t the remotest idea how business and entrepreneurialism work. There would be absolutely no point me as an angel investor taking a very high risk punt with money ( which I’ve already paid tax on once) investing on the off chance that should the investment succeed I will then pay 80% over in tax. You are deluded

          • matt_us
            Posted April 3, 2014 at 8:58 pm | Permalink

            “You are deluded”

            Your reasoning is due to the fact that you are used to low tax rates. A sudden change to an extremely high tax rate would put people off investing, sure.

            If there was only high tax rates (ie, 80%), and had been for the last 30 years, everywhere in the world, and you wanted that extra 20% income, you would have to invest as an entrepreneur.

            I am not advocating that this is the ideal situation or 80% the ideal tax rate, I am just trying to say if that rate was universal, there would be no difference in effort.

        • Matt
          Posted April 3, 2014 at 5:39 pm | Permalink

          I would very much like to read this research which suggests that the Laffer curve peaks at a rate of 80%.
          Everything I have read, and the consistent evidence of UK and world-wide history, suggests that the peak is at <~40%.

          • matt_us
            Posted April 3, 2014 at 8:37 pm | Permalink

            http://www.nber.org/chapters/c11222.pdf

            Now, this shows two Laffer curves, one where the peak is nearer to 30% (more what you said), one where it is nearer 70% (more what I said).

            The first one assumes the supply of labour is elastic, ie. each 10% rise of wages leads to a 40% rise in workers.

            The latter one assumes the supply of labour is inelastic, ie. each 10% rise in wages leads to 1.5% more workers.

            In times of high unemployment, surely the latter assumption is the right one.

  26. uanime5
    Posted April 2, 2014 at 8:17 pm | Permalink

    I do not understand where the Treasury got their £100 m cost of the 45p rate from.

    HMRC calculated that between 2010 and 2012 the wealthy would defer part of their income until the tax rate was lowered in 2013, and this loss of tax revenues would cost the treasury between £100 million to £1 billion. So if the tax rate hadn’t been lowered tax revenues would have been increased by £100 million to £1 billion.

    The Revenue and Customs figures for what actually happened is stunning proof that the tax cut from 50p to 45 has led to a big tax increase on the rich.

    The only reason the wealthy are paying more taxes this year than last year is that the wealthy deferred much of their income over the past few years. As a result the last few years have lower than average tax revenues while 2013-2014 had above average tax revenues. Though tax revenues will drop next year because they won’t benefit from all the deferred income.

    The UK lost high earners overseas, and encountered the ability of rich people to earn less and declare less income when rates are high.

    This progressive structure works as long as the government does not get too greedy, setting a higher rate which means the rich pay less because they either go or they earn and declare less.

    Care to provide some evidence that any of these high earners went overseas. Unless every other country with lower tax rates than the UK suddenly had a shortage of people willing to work in high paying jobs it would have been very difficult for the wealthy to leave the UK without reducing their income.

    Also your comments that the wealthy will “declare less income” proves that you knew the wealthy were deferring their income while tax rates were high because the chancellor promised to lower the 50% tax rate to 45% in 2013.

    This is despite a £9 bn tax hike on the high earners, showing the state is still collecting less from most taxpayers.

    Well when wages for all but the wealthy fall in real terms due to stagnation it’s no surprise that income tax revenues will also fall.

    I wonder how much more revenue the Treasury would enjoy if the top rate were set at a more competitive rate?

    Competitive compared to where? Most developed countries charge a similar or higher level of income tax on high earners.

    I suspect that too would see a further surge in revenue, money the state clearly needs to end the deficit.

    So far the only surge has been due to deferred income with no evidence that it will be maintained. Thus additional tax cuts are unlikely to result in a long term surge in tax revenue.

    • Edward2
      Posted April 3, 2014 at 3:35 pm | Permalink

      Uni
      You have now been proved wrong on your original prediction that the reduction in the top rate would result in less revenue.
      Now you are saying that next year, revenues from top rate payers will fall as will income tax receipts in total.
      I predict that yet again you will be proved wrong.

  27. Lindsay McDougall
    Posted April 3, 2014 at 1:39 am | Permalink

    Don’t forget to correct for fiscal drag. £150,000 this year is worth about 3% less than £150,000 a year ago because of inflation. What was the tax yield on incomes over £154,500 this year?

    I know this sort of calculation is a horrible chore. Wouldn’t it be so much easier if the Bank of England were to be given an inflation target of zero, which would involve raising base rate to around 3%?

  28. Steve Cox
    Posted April 4, 2014 at 5:11 am | Permalink

    John, I’d like to make two points if I may.

    Firstly, I believe that your opening statement is incorrect. Surely the 5% increase in VAT has raised the most extra tax has it not? HMRC raises around £100 billion annually from VAT, so the 5% VAT increase must be raising around an extra £25 billion annually. This is far more than the £9 billion increase in income tax paid by higher earners, and of course it’s highly regressive as it hits poorer people far more than it hurts the wealthy.

    Secondly, I believe from what I have read that the £9 billion is a one-off gain due to the rich people’s clever accountants moving their incomes around so as to avoid paying the 50% tax rate once they knew that the tax cut to 45% was coming. The proof of the pudding will be to see how much extra tax the change raises next year. I suspect that it will be a lot less than £9 billion as those pesky accountants won’t be able to fiddle things for their bosses this time around, so please let’s not get too excited just yet, and don’t anybody encourage Mr. Osbrown to plan on spending an extra £9 billion every year on this basis!

    Reply 5% of £100 bn is £5bn not £25bn! I expect the cut in higher rate to allow more tax to be collected next year as well as this, as the cuts did in the 1980s.

    • Matt
      Posted April 4, 2014 at 7:17 pm | Permalink

      Surely the rate of VAT went up by 2.5% (from 17.5% to 20%), or if you’re talking in relative terms: (2.5/17.5)x100~14%, which would imply that about £14billion could be attributed to the rise.

      According to HMRC (http://www.hmrc.gov.uk/statistics/receipts/info-analysis.pdf), the tax take from VAT was about £100billion in 2012-13 and about £70 billion in 2009-10 which is a rise of £30 billion which I think is probably reasonable to associate with the rate increase.
      From the same source, the tax take from income tax was £145 billion in 2009-10 and £152 billion in 2012-13. I haven’t found a breakdown of this yet, but given the rise in the personal allowance, which must have cut revenue substantially, there must be substantially increased receipts at the higher end or the take would have dropped by billions.

      Mr Redwood does this for a living and I do not, so my analysis may be way out. But all the data seem to be published so anyone can check these figures.

      As somebody on roughy an average salary, I’m surprised to see that so may people are so angry at a tax cut for people who pay an awful lot more tax than me.
      There is clearly a moral case for every citizen to simply be handed a bill each year for their share of the cost of government services. It would be about £10,000 for each adult or a little less if we bill children as well. Instead we have a system where the poorest find themselves paying less than they receive, sometimes even if they are in work.
      If somebody is making £1million/year and they pay 45% income tax, that’s £450thousand that the rest of us don’t have to find. Or to put is another way, it’s their “fair share” plus the fair share of 44 other people. How about we say “Thanks” every once in a while and stop treating them like they have something to feel guilty about.

    • Steve Cox
      Posted April 5, 2014 at 3:40 am | Permalink

      John, as an engineer I hate to point out how bad your maths is, but the 5% increase in VAT to 20% means that the increase represents one quarter, or 25%, of the total VAT take of £100 billion, or around £25 billion as I originally stated.

      Reply If that is your calculation then 5% on 15% is one third, but the increase in VAT revenue was nothing like one third when they put the rate up. One of the reasons of course is the rate was 17.5% and only went up 2.5%, not 5%.

  29. Benjamin Mackie
    Posted April 4, 2014 at 2:51 pm | Permalink

    And the VAT increase affects which group of people in society the most Mr Redwood?

    Reply The rich pay most VAT

    • Paul Corbett
      Posted April 5, 2014 at 11:59 am | Permalink

      Actually the rich do not pay most VAT
      The lowest earners pay most at their marginal rates.
      Economics is not really your strong point is i?

      Reply The rich pay most in cash terms, and those on low incomes buy more non Vatable goods as a proportion of their shopping basket.

  30. Benjamin Mackie
    Posted April 4, 2014 at 2:52 pm | Permalink

    And the VAT increase affects which group in society the most Mr Redwood?

    reply The rich pay most VAT. There is no VAT on food etc

  31. Benjamin Mackie
    Posted April 4, 2014 at 3:02 pm | Permalink

    John Redwood said that “the 50% rate had driven high earners overseas and encouraged them to use tax loopholes to declare less income”, whereas increasing tax on the poor via VAT does not encourage the poor to use tax loopholes or declare less income, because they have to buy stuff.

    The notion that not taxing people because you worry that they will get away with it, is a bit like reducing penalties for crime because you think it might encourage criminals to find ingenious ways round it.

    If you set a tax rate – enforce it.

    Tories are keen to reduce the tax on the rich (and not enforce taxes properly) but tax the poor who are sitting ducks.

    That’s the morality of John Redwood.

    Reply I believe in tax cuts for all, and have voted to take many people out of Income Tax altogether at the lower end of the income scale.

  32. Alex
    Posted April 4, 2014 at 4:40 pm | Permalink

    I am poor , can I defer my tax bill until there is a government that sets a 1% tax as 20% is far to much ?

    Possible not as the poor of this country get hit at source with no option but to cough up whatever the government of the day sets.

    It is high time the government ENFORCES the rich to pay on the nail their taxes. No special treatment. If the government sets 50p then they collect 50p hard and fast.

    The government has been saying that they must pay of this nations debt well we should be collecting every penny they set in tax from those who can well afford it.

  33. Paul Corbett
    Posted April 5, 2014 at 10:04 am | Permalink

    “The answer is the cut in top rate of Income Tax from 50p to 45p. (apart from the initial VAT increase).”

    And there’s the rub!
    The top earners, over £150,000 can hide their money and delay bonuses. If they decide to leave the UK then let them go. There are many more graduates who have been let down by this coalition waiting in the wings.

    However, the VAT increase has clobbered everyone and there is no getting away from that.

    Mr Redwood couldn’t run a sweet shop.
    etc ed

    Reply I suspect there is a lot of VAT fiddling going on as well.

    • Paul Corbett
      Posted April 5, 2014 at 11:47 am | Permalink

      Of course there is and you do not deny that there is tax manipulation and evasion – but this and previous governments have cut HMRC resources (I am ex HMRC) and fail to close tax loopholes.
      What are your views on that?
      Reply This government has increased the resources to combat tax evasion and has introduced a general anti avoidance measure. I deleted false comments re me as I do about anyone libelled or unpleasantly attacked by bloggers

  34. Matt
    Posted April 5, 2014 at 5:22 pm | Permalink

    Come on everybody, how much tax do we want the better off to really pay?
    It doesn’t seem to be enough for many that they already pay many times what an average person does.
    How do you think they got that money in the first place? In the vast majority of cases, nobody handed it to them. Are we really trying to punish people for making a success of themselves?
    We’re all arguing here about the fine detail of a system which systematically collects far more money from the rich than the poor, but provides the same services to all. Everybody is agreed on a redistributive tax system, but how far should that go? Some of the suggestions on here are extreme by any standard.
    Talk of collecting 80% or more from the most successful is hard to justify if you want to reward productivity, or have any kind of work ethic.
    The poorest working people in this country pay negative income tax. The unemployed and incapacitated are handed money without anything being expected of them. Whilst the people who are most productive hand over 45% of the money they make through their efforts and risks to the government to make all of this redistribution possible and fund public services many of which they could probably manage without far better than the rest of us.
    I also think some improvement in the accuracy in the language used to debate taxes is called for.
    If you mean more as a percentage of income, I think you should say that and not just “more”. If you’re talking about a change which makes the tax system marginally less progressive, but still blatantly progressive, it’s not really fair to call it regressive.
    Only the other side, let’s try not to refer to income tax as “tax” as it’s not the only one and even those who pay little or no income tax are still handing over a fair chunk of their money in VAT and duties.

  • About John Redwood

    John Redwood has been the Member of Parliament for Wokingham since 1987. First attending Kent College, Canterbury, he graduated from Magdalen College, and has a DPhil from All Souls, Oxford. A businessman by background, he has been a director of NM Rothschild merchant bank and chairman of a quoted industrial PLC.
    Published and promoted by Thomas Puddy for John Redwood, both of 30 Rose Street Wokingham RG40 1XU
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