William Norton is a solicitor. He has been an adviser on tax affairs and legislation to the Conservative frontbench and was a member of the permanent staff of the James Review on Taxpayer Value between 2004 and 2005. William was also the referendum agent for the victorious No campaign in the North East Regional Referendum and is currently a trustee of the Social Affairs Unit and a borough councillor in Worcestershire. The TaxPayers' Alliance recently published his report Paying for the Credit Crunch: Sharing the Proceeds of Thrift.
The Government’s proposed new 45% income tax band for people earning over £150,000 will not raise any money. There is no need for anyone to worry about it, if they know what they are doing.
Let’s look at some numbers. According to the November 2008 Pre Budget Report, the measure will raise £670 million in 2011/12 – which is less than the cost of the Millennium Dome – and that’s even after combining a knock-on effect of the higher rate for trusts. There are about 500,000 people affected, so they expect to raise about £1,340 from each of them, which in turn implies that that average earnings for this group is around £176,800 per annum.
The Government will actually raise far more money through their mean-minded plans to claw back the personal allowance for people earning over £100,000 (£830 million for 2010/11 and £1,320 million for 2011/12). For every £2 you earn over £100,000 you will lose £1 of personal allowance, until you’ve lost half of it, and then for incomes over £140,000 you lose a further £1 of personal allowance for every £2 earned, until it has all gone. Follow that? Do try to keep up. I haven’t noticed if there has been any debate about our policy on this aspect of the changes, which will hit more people than the 45% band.
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