This Government inherited one of the most uncompetitive rates of income tax in the G20. That is why the Chancellor asked HMRC to assess the revenue raised from the 50 per cent rate. HMRC’s report “The Exchequer effect of the 50 per cent additional rate of income tax” showed that the underlying yield from the additional rate was much lower than originally forecast (yielding around f1 billion or less), and that it is quite possible that it could have been negative. This is available on the HMRC website:
As set out at Budget 2013, the cost of reducing the additional rate of income tax to 45 per cent from 50 per cent is estimated at around £100m per year.
Costings account for substantial behavioural responses associated with changes in top marginal tax rates. The Government believes it is neither efficient nor fair to maintain a tax rate that is not effective at raising revenue from high earners and risks damaging growth.
A reduction in the additional rate to 40 per cent from 45 per cent would be estimated to cost the Exchequer around £1 billion in 2013-14.