A Labour government would raise taxes for nearly two million people before the end of Jeremy Corbyn’s first full term – in a move that could end up costing the country £1bn – according to the Institute for Fiscal Studies.
The party is planning to introduce a new 45 per cent income tax rate for those earning more than £80,000 and 50 per cent on those with incomes of £125,000 or more. The IFS, which is funded by the Nuffield Foundation, estimates that would affect 1.6m people from the outset, rising to 1.9m people by 2023-24.
Labour’s policy would add further burden to the country’s biggest tax contributors, with the top five per cent of income tax payers currently contributing half of all income tax revenues, up from 43 per cent just before the financial crisis.
But the IFS warned the amount this policy would raise was “highly uncertain”, with estimates ranging from a high of £6bn to an actual cost of around £1bn, if the policy resulted in a flight of capital from the UK.
Lawyers have previously warned that high net worth individuals are poised to shift billions out of the country in the event of a Corbyn government.
Xiaowei Xu, a research economist at IFS and an author of the report, said: “The likely extent of these responses is highly uncertain, though the more Labour reduces the scope to shift income into more lightly taxed forms, like capital gains, the more revenue its income tax proposal would be likely to raise.
“It is worth noting that we are already extraordinarily dependent on this small group of individuals for tax payments – they account for half of income tax revenues today.
“Perhaps contrary to popular belief, this group has seen the biggest tax rises over the last decade. Countries that raise more tax than us tend to have much higher taxes on people on average incomes, and not just rely on the highest income individuals for tax revenues.”
Treasury minister Simon Clarke warned that Labour’s “reckless spending spree” would result in higher taxes for everyone.
“Labour’s sums don’t add up,” he said. “They say only the top earners will pay but the revenue won’t come close to covering their £1.2 trillion spending pledges they’ve made so far. Proof that Corbyn’s Labour will result in higher taxes for workers, businesses and families… No one can afford the cost of Corbyn.”
A Labour spokesperson said:“Labour is proud of our proposals to protect 95 per cent of workers by making the top five per cent pay a little more to reverse years of neglect in our public services.
“The measures we are taking in other areas of tax will significantly reduce the potential for the wealthy to reduce their tax bills.”
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