The right hon. Gentleman is wrong. The Government have published one set of figures from only one year’s data. Much more data are now available for a further, more comprehensive review to be carried out, and the Government should do so. If they have nothing to hide, and if they are confident that they have made the right decision, they should submit that to scrutiny.
Returning to data and yield from the 50p rate, we know from the Government’s own assessment that the cost of cutting the rate from 50p to 45p was more than £3 billion, excluding all behavioural changes. In Treasury terms, £3 billion is a big deal, so how could the tax cut be justified? Well, the Government say that most of that potential £3 billion revenue would effectively be lost as a result of tax avoidance, the so-called behavioural change effect. Having assessed revenue lost as a result of tax avoidance and other behavioural change, the Government go on to say that the cost to the Exchequer of cutting the rate to 45p is only £100 million. So, on the Government’s figures, an additional rate of tax set at 50p would raise only £100 million.
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Except that even the HMRC report acknowledges, as does the Institute for Fiscal Studies, that all the analysis and estimates are highly uncertain. The scale of behavioural change is primarily based on an assessment of taxable income elasticity. This is the extent to which taxable income changes when the tax rate changes. The IFS says that there is a margin of error. Staying within the margin of error, one could easily say that, depending on the taxable income elasticity, cutting the rate could cost the Exchequer £700 million or could raise £600 million. That gives us an idea of the range of figures that we are talking about and how uncertain these projections are. The Government were and are well aware of this, so we can conclude that the decision was political and ideological, and was not rooted in certain and exact calculations and comprehensive data.
Let me deal with the point about comprehensive data because uncertainty is not the only thing that was wrong with the Government’s analysis. As I said in response to interventions, the HMRC report was based on only one year’s worth of data—the data relating to 2010-11—which is a significant weakness in itself. The report came too early. Given the history of the introduction of the rate and the Government’s decision to cut it, the reliance on year 1 of the rate being in place further weakens the Government’s argument on the numbers, because we know that incomes were taken earlier to
avoid the 50p rate when it came into effect, and as a result incomes in 2010 and 2011 were artificially lower, suggesting a lower yield.
The Government should, at the very least, update the analysis in the light of the more recent data for the years 2011-12 and 2012-13, because HMRC now has available to it records for the two years when the 50p rate was in place and it could update the report that was used for Budget 2012. That would give a much clearer picture to all of us who are relying on other figures and forecasts.
The Government say that the increased yield when the rate was cut to 45p is evidence that a lower rate of tax on that occasion resulted in a larger yield. However, they conveniently forget that just as people shifted income into 2009 and 2010 to avoid the 50p rate when it was introduced, once the Chancellor had said in his 2012 Budget that he would abolish that rate the following year, in 2013, people effectively decided to delay their bonuses and income until the new tax year 2013-14 in order to pay 45p rather than 50p. That is why our new clause requires the Government to consider the impact of the cut in the additional rate on the level of bonuses in particular. We know that income forestalling and deferment both occurred, and the Government cannot ignore the deferment of bonuses when they seek to argue that they made the right decision, and cite increased revenues in support of their argument.