The Budget

[Mike T]

..... so the 50% tax rate has been reduced because those potentially affected were so successful at tax avoidance that it only raised a fraction of what it would have had they not engaged in such behaviour .....

[Stolly]

..... so the 50% tax rate has been reduced because those potentially affected were so successful at tax avoidance that it only raised a fraction of what it would have had they not engaged in such behaviour .....

Avoiding 50% income tax was probably mostly achieved by bringing forward income so that it was taxed in the 2010/11 tax year - a lower rate of tax was paid yes but HMRC gained in that it was paid that much earlier. There are investments that can help avoid higher rate tax on the amounts contributed but pension scheme contributions already have an annual capped limit and the others like EIS schemes and VCTs come with a shed load of investment risk (and are now likely to be capped going forward). Yes tax can be avoided but you can still lose a substantial part of the money invested as you are investing in small businesses which by the very nature are risky. I suspect that a lot of 50p tax payers for the tax year 2012/13 will now defer income to the following year where the 45p tax rate will apply so there won't be the full quota of 50% tax this year either

[Muddy Retriever]

..... so the 50% tax rate has been reduced because those potentially affected were so successful at tax avoidance that it only raised a fraction of what it would have had they not engaged in such behaviour .....

It was only introduced for political reasons by Labour in the first place. It made no economic common sense as has been proved. It was pretty ineffective in raising additional revenue in the short term. In the long-term it would have been damaging as wealthy people would have been put off from living and paying tax in Britain. Should really have dropped it all the way back down to 40%. No doubt the class warriors will be jumping up and down though.

[noel]

It was only introduced for political reasons by Labour in the first place. It made no economic common sense as has been proved. It was pretty ineffective in raising additional revenue in the short term. In the long-term it would have been damaging as wealthy people would have been put off from living and paying tax in Britain. Should really have dropped it all the way back down to 40%. No doubt the class warriors will be jumping up and down though.

In that case, lets have no higher rate tax.

You're right it was a political decision, but the whole point of having higher taxes for higher paid people is that it's seen as reasonable that those affording to pay more (as a proportion) do so.

You could use the same argument about any incremental income taxes. "they raise less than you might think, because people can avoid them", "some people might not settle in the UK if our taxes are higher than other places" etc. But it comes back to what's politically and societally acceptable.

It seems a strange decision to give the well-off a tax break totaling £1bn while we are staring into the monetary abyss as a nation.

[Muddy Retriever]

In that case, lets have no higher rate tax.

You're right it was a political decision, but the whole point of having higher taxes for higher paid people is that it's seen as reasonable that those affording to pay more (as a proportion) do so.

You could use the same argument about any incremental income taxes. "they raise less than you might think, because people can avoid them", "some people might not settle in the UK if our taxes are higher than other places" etc. But it comes back to what's politically and societally acceptable.

It seems a strange decision to give the well-off a tax break totaling £1bn while we are staring into the monetary abyss as a nation.

Surely the best tax rate is the one that raises the optimum amount of tax. On 5 Live this morning they said that somebody had produced a report arguing that it was 38% for the better off. Unfortunately I don't have a link to that. But if that was true, having it at 40%, which was the accepted consensus of both major parties for two decades sounds pretty reasonable to me. 50% is also higher than a large majority of other western countires.

I don't think the net effect of the budget is a tax break for the very rich because stamp duty has been increased to 7% on those with houses worth more than £2 million. Lower earners have been helped because the personal allowance has been increased by more than the rate of inflation.

[Mike T]

Those who earn over £1,000,000 have been handed £50,000; lower rate tax payers have been handed a couple of hundred pounds - fair?

[southernsoftie]

It seems a strange decision to give the well-off a tax break totaling £1bn while we are staring into the monetary abyss as a nation.

Obviously taking a gamble that the lessons they learnt in one of their first Economics lessons (Laffer curve) pay off.

Newer tax rate at last year's income levels may point to a £1bn reduction in tax. Laffer curve argues that beyond a certain point increasing tax becomes a disincentive to work, therefore people work less, and the Government gets less tax revenue.

If you believe the older, higher tax rate was beyond the tipping point, you can reduce the rate of income tax whilst increasing tax revenues, as those in the higher range are incentivised to increase their incomes through further effort.

Time will tell if they got it right here...

[noel]

Obviously taking a gamble that the lessons they learnt in one of their first Economics lessons (Laffer curve) pay off.

Newer tax rate at last year's income levels may point to a £1bn reduction in tax. Laffer curve argues that beyond a certain point increasing tax becomes a disincentive to work, therefore people work less, and the Government gets less tax revenue.

If you believe the older, higher tax rate was beyond the tipping point, you can reduce the rate of income tax whilst increasing tax revenues, as those in the higher range are incentivised to increase their incomes through further effort.

Time will tell if they got it right here...

I think the estimation of £1bn was taking that into account. It's right that they always raise less than they think they will because of reasons like that. They initially estimated £3bn.

However you might argue it, the reality is that this is a tax cut.

Looking at it another way: it was a manifesto pledge (I think) - so the Conservative party should be applauded for sticking to it.

[Witton Park]

Those who earn over £1,000,000 have been handed £50,000; lower rate tax payers have been handed a couple of hundred pounds - fair?

Is anything fair Mike.

I tend to agree with the Noel asking why we have variable rates of tax anyway.

You can see where we have cut offs where you jump from one band to another that people will try and find natural ways to avoid jumping in to the higher band, such as happens with the levels of stamp duty.

I have some German colleagues from the Munich area, who moved to Switzerland to avoid over 20% of tax.

Flat rate, 40% on everything over £10K and abolish NI and we'd all be happy I reckon and those that earn more pay more.

[Mike T]

Is anything fair Mike.

I tend to agree with the Noel asking why we have variable rates of tax anyway.

You can see where we have cut offs where you jump from one band to another that people will try and find natural ways to avoid jumping in to the higher band, such as happens with the levels of stamp duty.

I have some German colleagues from the Munich area, who moved to Switzerland to avoid over 20% of tax.

Flat rate, 40% on everything over £10K and abolish NI and we'd all be happy I reckon and those that earn more pay more.

True, there is no reason why life should be fair, though if we can do simple things to nudge it in that direction I think we should. I am just trying to get people to voice their opinions as I suspect they are just as interesting as those on Radio 4.