New 45p rate will be kept under review, ministers are told, as chancellor denies blame for leaking budget details
Giving evidence to the Treasury select committee on the budget, the chancellor said he was interested in introducing dynamic modelling of projected tax changes. The change would make it easier for the Treasury to argue that a tax cut was likely to lead to a smaller loss of revenue than the current model would.
In the Treasury red book, the cost of cutting the top rate to 45p is £3bn in the first year, rising to £4bn by 2016-17. But the Treasury said the direct impact of households working harder and bringing more cash into the Exchequer meant the net cost falls to just £100m due to extra revenue from wealthier people working harder and bringing their incomes onshore.
A further indirect impact through increased VAT income would mean the 45p rate increases tax income overall.
Osborne insisted Treasury officials and their special advisers had not been behind any market-sensitive leaks of specific changes in tax rates before last Wednesday’s budget statement.