In 2008-9, well into the financial crisis, the UK state raised £22.5 billion in Self Assessment Income Tax, with a top rate of 40%. The following year, the last year at 40%, saw another £21.7bn collected.
The 50% rate then introduced was assumed by the Treasury to yield a lot more self assessment income tax, as high payers usually have to complete the self assessment process and are an important part of that total. In the June 2010 forecast the Treasury looked forward to raising £29.2 bn from self assessment in 2012-13, and £32,5bn in 2013-14. These forecasts were reduced steadily in successive years. So what actually happened?
In 2012-13 the Treasury collected just £20.6bn in self assessment Income Tax. In 2013-14 it managed £20.9bn. In other words, the Treasury collected 4 -5% less in those two years than in the last year of 40% tax, despite the inflation in the meantime.
More worrying is the gross inaccuracy of the forecasts. Revenue in 2013-14 was a massive 36% down on the June 2010 Budget forecast in 2013-14. It was 32% down on the Budget 2011 forecast.
Much of the debate about optimum or desirable tax rates in the UK is conducted without reference to any of these outcome numbers. Too many people assume the Treasury model and official statements about the impact of higher rates are correct, where the official word is they do not have a lot of effect either way.
People interested in this topic should instead study the outturn figures. They are markedly different from the forecasts. They show that self assessment Income Tax was hit badly by the 50% tax rate, and has been running a huge one third below forecast.