This September Income Tax receipts were £9.5 billion. In September 2010, a year ago, Income receipts were £10.3 billion.
An 8% fall in Income Tax revenue is unusual. The government hopes there are special factors. Perhaps you should not read too much into one month’s figures.
The problem is, there is evidence that successful and well paid people are taking action to avoid paying the 50% tax rate. Why not, they reason, leave some of their high remuneration in the company or other financial structure? Maybe the rate will come down, and then it can be distributed as income. Or maybe they can sell the company and get a capital gain with the accumulated extra profit. Or maybe there is a way to switch the company overseas. The one thing some want to do is to avoid paying too high a salary or bonus and having to part with 50% plus to the taxman.
Maybe some teams and highly paid individuals within financial institutions are simply going to lower tax centres elsewhere. In which case the income is permanently lost.
September also showed no increase in fuel duty receipts compared to a year earlier. The higher fuel price and the current level of fuel duty is stopping people from buying as much fuel as they could afford a year ago. The revenues have for the time being plateaued, after years of good growth.
I have written before about the lower revenues that follow naturally from slower growth, compared to the Chancellor’s five year forecast. We need to add in the impact that the squeeze on incomes across the income scales, and the 50% tax rate are having at the top end.It may be that higher rates of various taxes are self defeating. The Budget book forecasts less Capital Gains Tax next year when we get the full year effects of the higher rate.
This month there are also signs of a revenue squeeze on Income and fuel duties as well.