Cut in 50p tax rate to give Osborne pre-election bonus

by Nick Huber

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26 Mar 2012

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GEORGE OSBORNE will have a pre-election tax windfall of £3.3bn from his cut in the 50p tax rate as high earners delay their income to take advantage of the lower income-tax rate.

The Chancellor annnounced plans in last week's Budget last week to cut the top rate of income tax from 50p to 45p from April 2013.

The Office for Budget Responsibility (OBR), the government's fiscal watchdog, has forecast that high earners will shift £6.25bn of income from the 2012-13 tax year to 2013-14 to take advantage of the lower rate.

Companies are expected to delay bonus and dividend payments to help high earners avoid paying the 50p rate, tax experts said.

The OBR said this would increase tax liabilities by £3.3bn in 2013-14, much of which will roll in to the exchequer in January 2015 ahead of a general election that year.

"There will be a further small boost to taxable income in 2013-14 thanks to the underlying behavioural effect," the OBR said in its economic and fiscal outlook. "This would reduce tax liabilities by £3.4bn in 2012-13 and increase them by £3.3bn in 2013-14, at a one-off cost to the Exchequer in the range of £100-200m though this is again uncertain."

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