Falling tax receipts show that we’ve forgotten Laffer’s lesson

City AM discusses Dr Arthur Laffer's talk at the IEA

Something very worrying is happening to the UK’s public finances. Income tax and capital gains tax receipts fell by 7.3 per cent in May compared with a year ago, according to official figures. Over the first two months of the fiscal year, they are down by 0.5 per cent. This is merely the confirmation of a hugely important but largely overlooked trend: income and capital gains tax (CGT) receipts were stagnant in 2011-12, edging up by just £414m to £151.7bn, from £151.3bn, a rise of under 0.3 per cent. By contrast, overall tax receipts rose 3.9 per cent.

Revenues from income and capital gains tax had previously fallen sharply in both 2008-09 and 2009-10, before recovering somewhat in 2010-11. They remain below their 2007-08 boom time peak.

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