George Osborne was last night under pressure to cut income tax in the forthcoming budget after revealing that the cut in the top rate of tax raised an additional £8 billion for the Exchequer, reports The Telegraph.
Official figures suggest that scrapping the 50p rate raised an additional £8billion from high earners in 2013/14
The Chancellor disclosed that the cut in the 50p rate of tax have confounded official predictions and actually raised substantially more money.
The disclosure was welcomed by Conservative MPs who demanded that the Government now seize the opportunity to cut tax, which they believe will lead to more tax being collected as people stop avoiding levies.
Mr Osborne said that the rise in revenues “completely defies” predictions made by Labour that cutting the rate to 45p in the pound would cost £3 billion and give top earners an average £10,000 tax cut.
HM Revenue and Customs had predicted the rise would cost the Exchequer £100m in lost tax receipts, but its prediction also proved to be completely inaccurate.
The Chancellor is understood to be looking for an eye-catching initiative to cheer the Conservative Party in this month’s budget.
Mr Osborne is under pressure to appeal to the grassroots of the party which has flocked to support Boris Johnson in the wake of the London mayor’s announcement that he will campaign for Brexit.
Conservative MPs yesterday urged the Chancellor to now seize the opportunity to become a tax-cutting Chancellor and offer a break to middle-class workers in his forthcoming Budget instead of “punishing” them.
It has been suggested that the Chancellor could bring forward plans to raise the threshold for the 40p rate to £50,000, lifting hundreds of thousands of people out of the higher rate of tax. He may even now be tempted to cut the top rate of tax further to generate more money.
Mr Osborne is expected to announce deeper public spending cuts and is also considering plans to scrap higher rate tax relief on pension contributions, a move which could save the Government £6billion but penalise higher-earners and discourage saving.
Ministers also yesterday announced a radical review which could see the state pension age rise to 70 to save money.
David Davis, a Tory MP and former shadow home secretary, said it is time middle-class taxpayers “got a break”.
He said: “The people who have carried the biggest burden of increased taxes since 2008 have been middle income middle Britain.
“It is time they got a break. If he is finding money they should be up there.
“What this [cutting the 50p rate] demonstrates is that what we argued at the time – when you cut higher rates of tax you get a greater return for the public purse.
“You have to decide whether you want to punish high earners or capitalise them.”
Sir Alan Duncan, a Tory MP and former minister, said: “There must always be scope for helping the hard-working middle.
“Labour are always wrong on income tax. Nearly a third of all income tax raised is paid by just 1 per cent of taxpayers.”
George Osborne’s decision to scrap the 50p rate of income tax in 2012 was one of his defining moments as a Conservative Chancellor.
The move was heavily criticised by Labour and formed a central part of the former Labour leader Ed Miliband’s election campaign, as he accused the Conservatives of cutting taxes for the rich.
Jeremy Corbyn, the Labour leader, has also adopted the policy and called for the 50p rate to be restored.
During Treasury questions in the Commons, Mr Osborne: “We want to make sure this is done fairly and under this Government the richest pay a higher proportion of income tax than under the last Labour government.
“Indeed we have just had numbers out this morning from HMRC which for the first time show the income tax data for the year 2013/14, which is when the 50p rate was reduced to 45p.
“And what that shows is that actually there was an £8 billion increase in revenues from additional rate taxpayers, which completely defies the predictions made by the Labour Party at the time and shows that what we have are lower, competitive taxes that are paid by all.”
However, HMRC conducted no analysis of whether companies changed the way they paid employees to take advantage of the tax cut.
The disclosure of the tax data came as a minister suggested that pensions tax relief should be used to help lower paid workers rather those who are better off, in the strongest hint yet that the Chancellor is preparing to mount a pensions raid on middle-class savers.
The Chancellor is considering plans to scrap higher rate tax relief on pension contributions as part of his Budget later this month and move towards a “flat rate”, which could be as low as 25 per cent.
The move would give lower paid workers more tax relief on their pension contributions but represent a significant cut for those who earn more.
David Gauke, the Financial Secretary to the Treasury, said in response to concerns raised by a Conservative MP that the Government wants to ensure that “the costs of pensions tax relief are targeted in the right direction”.
