Osborne claims victory over top-rate tax cut

George Osborne claimed victory in parliament yesterday over his controversial move to cut the top rate of tax paid by those earning more than £150,000.

The Chancellor (pictured above) cut the so-called "additional rate" of tax from 50 per cent to 45 per cent from April 2013, citing evidence that excessively high rates encourage more aggressive tax avoidance and reduces receipts to the Treasury.

Labour called it a "tax cut for millionaires", but figures published yesterday suggest it has seen substantially more revenue being collected from the highest paid.

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According to the HMRC, additional-rate taxpayers contributed £46bn in the financial year 2013-14, £8bn more than in 2012-13.

Osborne said the data “completely defies the predictions” made by Labour, reports the Financial Times, and shows that “what we have are lower, competitive taxes that are paid by all”.

The paper added that the figures could fuel speculation of further cuts to come in this month's Budget.

Sources close to the Chancellor have hinted that any reductions would be in line with manifesto commitments to raise the tax-free allowance for the lowest paid to £12,500 by the end of this parliament and to increase the threshold for the 40p higher rate at the same time.

There was also considerable doubt as to whether the figures really pointed to more tax being collected on a like-for-like basis.

The Office for Budget Responsibility had predicted when the tax change took place that bonuses and other variable remuneration would be deferred until after April to take advantage of the rate reduction. It predicted that the rate change would cut liabilities by £3.4bn in 2012-13 and increase them by £3.3bn billion in 2013-14, the FT says.

On top of this, there is the general increase in wages that would have been expected from one year to the next - and the fact that as the threshold for the rate remained unchanged, significantly more people fell into the top tax bracket in 2013-14 (up nearly a third from 236,000 in 2010-11 to 311,000).

The proportion of tax paid by those earning more than £150,000 has risen from around 23 per cent when Labour left office in 2010 to 28 per cent last year. Higher-rate taxpayers accounted for 37 per cent, up from 31 per cent.