Osborne's fudged figures
The claim that the wealthy will pay five times more doesn't stand up to scrutiny
By Jaimie Kaffash | Published 16:54, 26 March 12
Chancellor George Osborne’s Budget would likely be described by Sir Humphrey - the fictional character from the 1980s TV series Yes, Minister - as “courageous”. In Yes, Minister-era civil service parlance this was shorthand for “could lose you the election”.
The chancellor’s most “courageous” move was arguably the decision to remove the 50p tax rate. It was was an ideologically-driven decision based on two fundamental principles: that people should not give more of their money to the state than they take home themselves. And second that lower taxation leads to increased economic growth.
Whether you agree with the first principle depends on your political beliefs. But there is a debate to be had for the second point. Remove the 50p rate, the argument goes, and the economy as a whole will grow. This is obviously a principle Osborne agrees with.
However, he chose to go for the blunter justification - that revenue will be raised regardless of a whether the economy grows. In a (failed) attempt to head off headlines of “tax breaks for the rich, tax hits for grannies”, Osborne and prime minister David Cameron tried to drive home their view that the wealthiest will bear the biggest burden in the current austerity drive. Osborne joyfully told parliament - and the millions of viewers watching the Budget - that the Exchequer would earn “five times more money each and every year from the wealthiest in our society”, primarily through a new stamp duty tax.
The calculation is based on a series of hypotheticals. While there is nothing wrong with this per se, to present the figures as definitive and a rebuttal of potential criticisms is cynical. More importantly, the statement prevents a real discussion of what the removal of the 50p tax rate will do for the economy as a whole.
So what are these hypotheticals?
The government calculated that the 50p tax rate is bringing in only £100 million to the Treasury coffers a year. This is because of the effect of the rate on the behaviour of additional rate taxpayers. But putting a figure on behavioural change is notoriously difficult. The Office for Budget Responsibility said the estimate was “reasonable”, but also uncertain. Is it really a strong enough premise on which to make such a bold claim?
Even assuming this £100 million guess was close to correct, there are problems with the “five times more” (that is, £500 million) pledge.
It is a fairly strong estimate that the 7 percent stamp duty on houses worth more than £2 million will bring in £260 million extra a year as described in the Budget book, as it will unlikely affect those wanting to sell from selling.
But the Treasury also expects to raise around £300 million a year through a cap on the amount that could be saved through income tax reliefs. As CFO World reported last week, experts are dubious about this figure.
Worryingly, if the £300 million figure were accurate the bulk of it is likely to come from capping charitable donations - not exactly the intended consequence.
In the grand scheme of things, a couple of hundred million pounds is neither here nor there when looking at overall revenues. But this major policy decision to remove the 50p rate of tax would have opened up an essential debate on the problems businesses say they face, and whether the public would side with them.
Instead, we have these best-guess - but explicitly unreliable - figures intended to deflect attention from the real issue at hand.