Andy Burnham has been cautioned against implementing a 50% HMRC income tax band for higher earners should he become Labour Party Prime Minister. The last time the income tax rate was set at this level, it generated surprisingly little revenue for the Treasury as the wealthiest altered their behaviour to sidestep paying more, according to The Times.
Burnham's Previous Comments on Tax
Mr Burnham indicated to The Telegraph last year that there was "definitely a case" for increasing the top rate of income tax from 45 per cent. The 45% tax rate applies to the "Additional rate" of UK Income Tax. In England, Wales, and Northern Ireland, this rate is levied on any taxable income over £125,140.
Historical Precedent and Expert Warnings
Chancellor-in-waiting Ed Miliband expressed his desire to raise the rate to 50 per cent during his ill-fated 2015 election campaign. However, Robert Salter, a director at accountancy firm Blick Rothenberg, said: "The problem with touching the additional rate is that it brings in very little for the Treasury." Adding 1p would raise about £230million. By comparison, raising the basic rate by the same amount raises about £7billion.
He added: "So it's probably not worth it for Andy Burnham because it is so limited in what it can generate." Stephen Kenny, a tax partner at PKF Littlejohn, said: "The feeling at the minute is that it's all a bit of a joke. Top earners are sick of all the rumours and conversations about wealth taxes, exit taxes and income tax rises."
Past 50% Rate Experiment
Mike Hodges, from accountancy firm Saffery, commented: "The most recent experiment with a 50 per cent top rate of income tax which lasted for three tax years from April 2010 wasn't a conspicuous success and should probably serve as a warning for any future chancellor."
Mr Salter suggested: "That would be a way of selling it to the public as a necessary measure in exceptional circumstances." Mr Kenny stated: "Whatever Andy Burnham does, he needs to show he is going to lead a stable Government that won't keep changing its mind."
Potential Mid-Year Rate Increase
Nimesh Shah, from accountancy firm Blick Rothenberg, warned this could happen again if a 50 per cent rate were announced, to come into effect at the start of the following tax year. "A mid-year rate increase should not be ruled out," he said, "but it is practically very difficult to implement and creates huge complexity."
