Messrs Miliband and Balls performed their pre-autumn statement double act today. If for some inexplicable reason you missed it, the Labour chiefs launched their Q&A with an attack on the government for its decision to cut 50p income tax rate to 45p:
‘The Government is about to give an average of £107,500 each to 8,000 people earning over a million a year. Not £40,000, but £107,500. To 8,000 millionaires. David Cameron and George Osborne are giving them this money. But it’s coming from you.
‘You are paying the price of their failure and them standing up for the wrong people. David Cameron and George Osborne believe the only way to persuade millionaires to make work harder is to give them more money. But they also seem to believe that the only way to make you work harder is to take money away. Cut your tax credits, squeeze your living standards, get rid of some of the services on which you rely, and put up VAT.
‘That’s where the money is coming from for the millionaires’ tax cut.’
It’s a powerful attack, but unfortunately for the two Eds, it just isn’t true. HMRC produced a thorough analysis of the 50p rate for the last Budget, and put the cost of cutting it to 45p at £100 million a year (Table A2 of the document). And that’s before you take into account the effect on indirect taxes (for example, if someone pays less income tax, they might spend more and hence pay more VAT). HMRC reckoned the cut to 45p would boost indirect tax receipts by around £130 million a year. Overall then, by HMRC’s analysis, cutting the 50p rate to 45p costs nothing at all — and might even save the Treasury around £30 million a year.
So where’s the money coming from for ‘the millionaires’ tax cut’? Not from tax credits, cuts or the VAT hike as Miliband claims. It’s coming from the millionaires’ tax cut.