Question to the HM Treasury:

To ask Mr Chancellor of the Exchequer, what the effect was on revenue from top rate income tax of the reduction of the top rate from 60 per cent to 40 per cent in 1988 in the (a) first year and (b) second year following that reduction.

Observed changes in tax receipts following rate changes will reflect a combination of effects of the rate changes and underlying economic and distributional changes.

One study that analyses these effects is set out in the Institute Fiscal Studies (IFS) Mirrlees Review, Dimensions of Tax Design. This studied the revenue impacts of tax changes during the 1970s and 1980s, including the rate changes in 1988. It is available at: http://www.ifs.org.uk/mirrleesreview/dimensions/ch2.pdf (see Chapter 2).

This study was part of the evidence considered by HMRC in the report “The Exchequer effect of the 50 percent additional rate of income tax” published at Budget 2012. The behavioural response estimated in the HMRC report is consistent with a range of academic studies including the results from the IFS.

The HMRC report is available at; http://www.hmrc.gov.uk/budget2012/excheq-income-tax-2042.pdf