50p tax dodge led to £8bn boost

RICH people deferring their income until after the top rate of tax was slashed were a major factor in the Treasury taking an extra £ 8billion in revenue, the independent Office for Budget Responsibility has said.

George Osborne had claimed that cutting the rate of income tax paid by people earning more than £150,000 from 50p in the pound to 45p would lead to the Treasury reaping more money.

The Chancellor later said that his move in slashing the rate had led to an ‘£8billion increase in revenues from additional rate taxpayers’ and that the figures vindicated his approach.

But the OBR attributed much of the gains to high earners shifting money between tax years. In a footnote to its Economic and Fiscal Outlook report last week, it said that ‘taxpayers shifting income between years to take advantage of the lower 45p rate is likely to be a major factor driving this increase’.

Many high earners chose to defer their income until the 013-14 financial year, when the top rate of tax was cut from 50p to 45p.

City bonuses soared by 70 per cent in April 013, when the top rate of tax was cut, compared to the year before.

Jon Ashworth, Labour’s shadow minister without portfolio, said: ‘This is an embarrassing slap down for George Osborne, whose claims have been called out by his own independent body.

‘With his latest Budget in disarray this is a reminder of George Osborne’s disastrous decision in the last Parliament to cut the 50p rate and hand a tax cut to those at the top while making everyone else pay more.’

A Treasury spokesman said: ‘Latest figures published by HMRC show that in the year that the 50p rate was reduced to 45p, there was an £8billion increase in revenues from additional rate tax payers and at the same time, following increases to the personal allowance, the number of taxpayers fell by 00,000.

‘Under this Government, the richest pay a higher proportion of income tax, and this shows our reforms mean lower, competitive taxes that are paid by all.’

Treasury sources said they had always expected some of the extra tax to be due to deferred income.

The last Labour government introduced the 50p rate for those earning over £150,000 in April 010, just a month before losing power.