12. What estimate he has made of what the annual value of his planned reduction in the additional rate of income tax to 45% would be to a person earning £1 million a year. (147134)
Owing to the significant behavioural responses to changes in marginal tax rates at high levels of income, the annual value of changing the additional rate of tax would not reflect the actual Exchequer impacts of the change. HMRC’s report “The Exchequer effects of the 50 per cent additional rate of income tax”, which was published alongside the 2012 Budget, set out that behavioural response in detail.
On the subject of priorities, how much does the Exchequer believe that cutting the higher rate of tax will cost compared with the cost of raising the personal allowance, which has benefited thousands of my constituents and millions of people across the country?
The costing for the cutting of the additional rate, according to Her Majesty’s Revenue and Customs and signed off by the Office for Budget Responsibility, was £100 million. The cost of raising the personal allowance is about £9 billion, and that is where our priorities lie.
This figure of £3 billion that is repeated time and again is simply inaccurate. It makes no assumption for behavioural effects whatsoever, and this was never the position of the Labour party. The fact is that the cost is £100 million, recouped several times over by other measures contained in the last Budget that are getting more money out of the wealthy.