Duncan’s Economic Blog

The 50p Rate is Working

Posted in Uncategorized by duncanseconomicblog on February 22, 2011

Table PSF6 of today’s public sector borrowing figures (page 22 of this pdf) is worth a look.

It shows that income tax receipts (in cash terms) in January 2011 came in at £23,793mn up 17.8% on January 2010.

Meanwhile National Insurance Contributions (NICS) over the same period were up only 4.2%.

Income tax receipts soaring well ahead of NICS – could it be that the 50p rate is effective and raising revenues?


21 Responses

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  1. Neil Wilson said, on February 22, 2011 at 11:47 am

    Let’s hope that all came from personal savings then. Otherwise it has just removed £3 billion from a hopelessly depressed economy needlessly.

  2. […] This post was mentioned on Twitter by Phil BC, AdamRamsay, Peter Kenyon, Mehdi Hasan, False Economy and others. False Economy said: RT @DuncanWeldon Today's public finance figures suggest the 50p rate is working. http://wp.me/pt0AC-lq […]

  3. Luis Enrique said, on February 22, 2011 at 12:15 pm

    I am fastening my napkin to my collar

  4. Tim Worstall said, on February 22, 2011 at 1:56 pm

    You’ll be wanting to adjust for CGT of course: included in the income tax figures and which don’t, of course, attract NI….

    CGT is paid in arrears as well, so the comparison is, for the CGT component, between 08/09 tax year and 09/10 tax year, payable in Jan 11 (think I’ve got that right).

    No, I don’t know what the stock market etc was like in those two years either but you’ll certainly have to adjust for that…..

  5. Alex said, on February 22, 2011 at 5:46 pm

    Tax receipts for January mainly relate to balancing payments for the 2009-10 tax year. 50% didn’t kick in until 6 April 2010.

  6. Vercingetorix said, on February 22, 2011 at 7:27 pm

    The tax receipts in January 2011 relate to the tax year 2009/2010.

    The 50p tax rate only kicks in for the tax year 2010/2011 so has nothing much at all to do with receipts in Janaury 2011.

    All this post shows is that the blog’s author know next to nothing about how the UK tax system actually works.

    • Peter Kunzmann said, on February 22, 2011 at 11:04 pm

      I speak as a non-expert here, but wouldn’t the January 2011, or, indeed any figure from April 2010 include PAYE, which would include money from the 50% band?

      Just looking at the figures, the first two months of 2010 income tax receipts were down on the year before. In March and April receipts go up dramatically, with NICs up too – perhaps indicating people bringing pay forward to avoid the new rate.

      After that you get increased Income Tax month on month compared to the equivalent the year before (with the exception of June) – but NICs do not follow the same pattern, sometimes slightly higher, sometimes slightly lower.

      • Vercingetorix said, on February 23, 2011 at 7:14 am

        The reason January is a big month for tax is because it is the month in which tax bils for the self employed get paid, along with other tax due under self-assessment. PAYE is largely irrelevant to why January is a key tax month. Just ask HMRC or any member of the Institute of Taxation.

        If this January was a bumper month (relatively speaking), it will be almost entirely due to tax assessed under the 2009/10 regime. Which did not include the 50% tax rate.

        • duncanseconomicblog said, on February 23, 2011 at 7:58 am

          And bonus season – under PAYE. This year under 50%.

          • Vercingetorix said, on February 23, 2011 at 9:52 am

            There’s likely to be some bonus effect in the January number but it is insufficient to have the consequences you’d like to ascribe to it. For a start, it is simply not the case that all banks pay their bonuses in January. Many do not. Then of course many bonuses are being paid in shares or payment is being deferred – for all the good regulatory reasons we know about.

            Nice try but no cigar.

            The reality is the effect this Jan is almost certainly down to self-assessors accelerating income into tax year 09/10 to get it taxed at 40%. Accountants did a roaring business on such schemes this time last year. It doesnt mean 50% tax wont increase the tax take it just means that in your enthusiasm to declare victory you’ve shot your bolt at least a year too early.

            • duncanseconomicblog said, on February 23, 2011 at 10:11 am

              Income tax up ahead of earnings or employment every month since April, that looks like a PAYE higher rate effect to me.

              Yes – some of Jan will be SAE.

              Some of it will be bonuses.

              But the main point – the 50p rate is raising not losing revenue.

              • Peter Kunzmann said, on February 23, 2011 at 10:58 am

                Ok, I’ve put the data in a spreadsheet and looked at the percentage change month by month compared to the year before.

                Excluding the January 2011 figure for the moment.

                In the months before April 2010 the percentage increase in Income Tax lagged behind the percentage increase in NICs. Following April 2010 the increase in Income Tax was greater than the increase in NICs – with one exception in August.

                The 50% rate would seem a plausible explanation for this pattern.

                In regard to January’s figures, I’ll infer from all the posts above that they do include self-assessment receipts from the year before – and a good portion, but not the totality, of bankers bonuses. This makes the interpretation of January alone more difficult; however, it’s not exactly out of line with the earlier pattern.

                • duncanseconomicblog said, on February 23, 2011 at 11:01 am

                  And the improvement in income tax receipts is ahead of earnings and employment growth – suggesting policy change.

                  On the SAE versus PAYE thing – important to note that the vast majority of people who do SAE also use PAYE.

                  A salaried banker on £200,000 plus a £200,000 bonus will use PAYE for all of that. They will also fill in a SAE for any capital gains from personal portfolio.

                  • Vercingetorix said, on February 23, 2011 at 7:08 pm

                    SAE vs PAYE

                    Important to note that there are around 4 million self employed people in the UK. By definition, none of these people are on PAYE. That’s 4 million reasons why January is a big month in the tax calendar.

                    • Dromigan said, on February 25, 2011 at 9:24 am

                      Actually you can be Self-Employed and Employed at the same time so you’re wrong with the comment “none of these people are on PAYE”

                      But would agree otherwise.

              • Vercingetorix said, on February 23, 2011 at 7:04 pm

                You’re playing bait and switch Duncan. And not very well. If you want to make a point on the basis of month-by-month numbers then by all means go ahead and amend your original blogpost accordingly. The fact is you tried to make the point by reference to the one off increase in this January’s numbers versus last year’s and those numbers don’t bear the weight you’ve put onto them.

                • Peter Kunzmann said, on February 23, 2011 at 11:05 pm

                  I think that’s a little unfair. It was a short blog post and he only posed the possibility that the 50p rate could be the cause of the extra revenue.

                  Following that post, in this thread (and in other places) a number of facts have been pointed to that are consistent with the hypothesis is a cause of the increased revenue – all of which are easy to verify.

                  Namely that:
                  a) that the pattern of IT outstripping NICs was present since the introduction of the new rate.
                  b) that SAE receipts would indeed include some 50% rate revenue. (See http://www.progressivechange.org.uk/2011/02/a-bit-of-truth-on-the-50p-tax-receipts/ for an interesting account)
                  c) that PAYE receipts are included in the figure.
                  d) that wages and employment growth have not improved significantly.
                  e) that people can indeed use both PAYE and SAE at the same time (as the HMRC website suggests http://www.hmrc.gov.uk/sa/introduction.htm)

                  Duncan’s initial hypothesis, to me at least, remains very plausible.

                  In any case, it should be reasonably easy to subject that hypothesis to a better test in the near future, once we have the figures that were raised under PAYE and SAE etc.

  7. duncanseconomicblog said, on February 23, 2011 at 11:15 am

    Also, SAE would income some 50p rate…


    • Mike said, on February 23, 2011 at 2:51 pm

      Just a note of caution: the two payments mentioned in the article are an estimate by the Inland Revenue, rather than the final return. So an increase in this revenue implies only that the Inland Revenue believe that a higher rate yields higher returns.

  8. Nice try Mr. Weldon said, on March 25, 2011 at 7:59 am

    […] tried to tell us that high January income tax figures showed that the 50p tax rate was raising […]

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