It’s interesting to see that the Government is scrapping its plans to abolish the 50% tax rate — at least for the immediate future. I suspect the reasoning has very little to do with raising cash, and is more political.

The 50% rate generally only applies to those with incomes over £150,000 a year, and there probably aren’t that many people in this fortunate position. I suspect that the 50% rate therefore won’t raise that much cash, although we won’t know until all the 2010/11 tax returns have been processed how much has been raised in its first year.

While there aren’t that many people making over £150,000 a year, those that do have taken great exception to the 50% rate. When it was introduced, I thought that moving the top rate from 40% to 50% would just annoy those affected, but they’d accept it because it wasn’t so much of a hike that they’d be bothered to do anything about it. But I think I underestimated the result. People who thought that 40% was “fair enough” seem to think 50% tax is just going too far (especially if there is National Insurance payable on the income as well), and are much more willing to consider tax avoidance schemes that may mean that Government may get less tax off them than before. Some may even consider leaving the UK.

The Government may not care. If the numbers of people affected are relatively modest, the amount of tax gained or lost is probably not that big a deal. It is more likely that they think that it is important to keep the rate simply so that they can argue that “we are all in this together”, and that rich people are being see to do their bit.