50p Tax Cut Based On 'Highly Uncertain' Estimates, MPs Say

50p Tax Cut Estimates 'Highly Uncertain', Warn MPs

Estimates used by George Osborne to justify the axing of the 50p top tax rate are "highly uncertain", an influential group of MPs warned today.

The Treasury Select Committee said the cost of reducing the level to 45p "could be significantly more or less" than the £110 million cited by the Chancellor.

It also urged the Government to offset the pain quantitative easing is causing savers, and suggested that ministers had so far failed to make the case for capping tax relief on charitable donations.

The conclusions came in the MPs' report into last month's Budget.

Referring to the controversial decision to reduce the levy on earnings above £150,000, the committee said: "The cost and benefits of reducing the additional tax rate to 45p are both highly uncertain, and could be significantly more or less than the cost included in the Budget. We recommend that HM Revenue & Customs publish in due course a comprehensive assessment of the effect on the Exchequer of the new 45p rate."

The MPs also said more information was needed on the effects of the £325 billion of new money effectively "printed" by the Bank of England.

"Loose monetary policy, achieved through quantitative easing and low interest rates, has redistributional effects, particularly penalising savers, those with 'drawdown pensions' and those retiring now," the report said.

"The Bank of England has argued that some of those effects may be mitigated by the increase in asset prices stimulated by quantitative easing.

"While the aggregate of savers and pensioners may have received some benefit from higher asset prices, there will be many individuals who will not have benefited.

"The Bank of England, after, where appropriate, consultation with the Treasury, should provide its estimate of the overall benefit and loss to pensioners and savers from quantitative easing."

The document went on: "We recommend that the Government consider whether there are any measures that should be taken to mitigate the redistributional effects of quantitative easing, and if appropriate consult on them at the time of the Autumn Statement."

The committee cautioned that easing the impact of cutting child benefit from families with higher incomes would complicate the tax code and did not address all objections to the policy.

It also insisted ministers should offer a "more detailed explanation" of proposals for cutting tax relief on charitable donations.

"We recommend that the Treasury soon ask HMRC to make an assessment and publish the impact of the cap on income tax reliefs, both on business investment and charities. A more detailed explanation of the problem the cap seeks to address is needed, along with consideration of other possible means of dealing with it as the Red Book proposes."

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