The truth behind the Mail’s warning that 50p tax will cost £350bn

The Daily Mail this morning reported that "Labour's 50p tax rate 'could cost the country £350bn', Osborne warned". The claim was calculated on the back of a fag packet.

The Daily Mail this morning published the surprising news that “Labour’s 50p tax rate ‘could cost the country £350bn’, Osborne warned“. The number, if it were true, would be eye watering. Readers can decide for themselves whether it’s worth more than the fag packet on which it was calculated.

The source of the story is the Adam Smith Institute who have put together a short report titled ‘The Revenue and Growth Effects of Britain’s High Personal Taxes‘. The report concludes:

“At a minimum, the policy risks flat growth for a decade, and a possible recession at the end of the period. The net effect upon government finances, adverse from the outset, gets worse from year to year and ends up with net losses of some £350bn after ten years. In the worst-­‐case scenario, approximately £640bn of revenue would be forgone.”

The Mail made no mention of the fact that the £350bn would be spread over 10 years but, even so, £35bn is a huge number. The Adam Smith Institute get this number and their claim about “flat growth” from projections over how many individuals will leave Britain as a result of the tax regime. As the table below shows, the survey of “tax advisers” found that at a minimum, 25% of personal taxpayers and 15% of corporate taxpayers are considering leaving the UK.

From their survey of “several dozen” tax advisers (I’m told by author, Miles Saltiel) and assumptions about migration and recruitment, which are not disclosed in the report, the authors extrapolate that at least 17% and up to 31% of higher rate taxpayers working in London’s financial services sector will leave the country. In other words up to a third of all those working in the City and earning above £150,00 will have left the UK by 2016.

Saltiel told me that his calculations were “a lot better than a wet finger in the air” and that although he was “pretty comfortable” with the conclusions, there were not enough survey respondants “to do a statistical thing”. Statistical things aside, readers will no doubt remember similar claims by Paul Daniels and Frank Bruno after the 1997 election.

The
increase
in
the
top
tax
rate
may
prove
disastrous
for
revenue
raising.
At
a
minimum,
the
policy
risks
flat
growth
for
a
decade,
and
a
possible
recession
at
the
end
of
the
period.
The
net
effect
upon
government
finances,
adverse
from
the
outset,
gets
worse
from
year
to
year
and
ends
up
with
net
losses
of
some
£350bn
after
ten
years.
In
the
worst-­‐case
scenario,
approximately
£640bn
of
revenue
would
be
forgone.
The
UK
simply
cannot
afford
such
an
ill-­‐judged
policy.

27 Responses to “The truth behind the Mail’s warning that 50p tax will cost £350bn”

  1. Deb

    RT @leftfootfwd: The truth behind the Mail's warning that 50p tax will cost £350bn http://bit.ly/ebOV2L by @wdjstraw

  2. UniteYou

    RT @leftfootfwd: The truth behind the Mail's warning that 50p tax will cost £350bn http://bit.ly/ebOV2L by @wdjstraw

  3. False Economy

    RT @leftfootfwd The truth behind the Mail's warning that 50p tax will cost £350bn http://bit.ly/ebOV2L by @wdjstraw

  4. David Nash

    RT @leftfootfwd: The truth behind the Mail's warning that 50p tax will cost £350bn http://bit.ly/ebOV2L by @wdjstraw

  5. Other TaxPayers Alli

    RT @leftfootfwd: The truth behind the Mail's warning that 50p tax will cost £350bn http://bit.ly/ebOV2L by @wdjstraw

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