GEORGE OSBORNE has paved the way for the possible lowering of the 45p tax rate by ordering Treasury officials to change the way in which they measure the impact of taxation levels on the British economy, The Times reported.
The Chancellor does not believe that the present system, which looks at the income raised directly by a tax, is robust enough. He has asked civil servants to start in-depth research into the "broader economy effects" of different rates, called "dynamic scoring", The Times said.
The shift is likely to provide Osborne with evidence that he can use to argue in favour of tax cuts, including the 45p rate. "I would like overall levels of taxation to be lower," he told MPs in the Treasury Select Committee yesterday.
Sources told The Times that lowering the top rate of income tax could boost VAT receipts by incentivising people to spend their additional disposable pay. This is not at present taken into account. A cut in corporation tax, they added, could attract more businesses to Britain. Introducing that information would make lower tax rates more appealing.
"I think we should be cautious about making these changes," Osborne told the committee, insisting that the way in which the Budget scorecard is calculated and the way the Office for Budget Responsibility does its work will not change. "But I think the Treasury can now, and I've asked this to happen, start undertaking some real research into dynamic scoring, and what the broader economy effects are of changes to taxation."
He said that the 50p rate of tax, which he scrapped in the Budget last week, was given "special status" of being temporary. The same was not true of the 45p rate, Osborne said. But he added: "There will be an ongoing assessment of how much revenue is raised from the 45 pence ... I keep all taxes under review."
The 45p rate was competitive, he argued, compared with continental Europe, but was higher than many states in the US.
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