The hon. Gentleman refers to dementors, and I am afraid that he is living in the world of fairy tales and Harry Potter with his economics. It is this Government who are taking people out of income tax and this Government who are providing support to low earners. The fact is that a 50p rate was not effective.
We heard many speeches about a tax cut for millionaires and so on. The hon. Member for Newcastle upon Tyne North made it pretty clear that she disliked clause 16 and schedule 3, which introduce a cap on reliefs. Such reliefs exist for good reasons and can encourage certain activities and behaviours that benefit both our economy and wider society, such as entrepreneurship and investment, which help to drive growth. We are committed to supporting such activity, but that support should not be limitless, especially at a time when the priority is to balance the public finances. In the past, some individuals have been able to offset unlimited reliefs against their income to reduce their income tax bills to zero. Those are often very wealthy individuals who can end up paying a lower tax rate than the people they employ to clean their offices. That is simply not right and some individuals have been able to do that year after year.
It is right and fair that we should seek to prevent such activity by limiting uncapped reliefs. That is what clause 16 and schedule 3 do: they cap the use of previously unlimited income tax reliefs at £50,000 or 25% of an individual’s income, whichever is the greater. The cap came into effect on 6 April this year. The changes will affect only around 7,500 individuals and more than 90% of the revenue will come from those with an income of more than £150,000—that is, those who pay the additional rate of income tax. The limit is expected to raise about £200 million a year, significantly more than the cost of reducing the 50% rate down to 45%.
One question that has been asked is whether the provision will hurt start-ups and SMEs. Some 90% of trading losses set against general income in a tax year are less than £15,000 a year, well below the threshold for the cap. Business loss reliefs are not intended to subsidise businesses that have no chance of success. We have a generous regime, but we do not believe that it should be without limit. Unlimited reliefs mean that some people, often with high incomes, can pay little or no income tax year on year. We do not believe that that is fair. There will be no limit on trade or property losses set against profits from the same trade or property business in another year and business loss reliefs are not intended to subsidise established businesses that make losses year after year.