40p rate would come at 'very large cost'
Former Cabinet Secretary Lord O'Donnell has warned that there would be a 'very large cost' to the Treasury if the 45p tax rate is cut to 40p.
In an interview for The House magazine, he also revealed that he was considering applying for the post of Bank of England Governor.
He said research from the Office of Budget Responsibility clearly indicated the revenue maximising top rate of tax.
“What struck [me] was the – it’s buried away in a footnote – solution to one of the all times biggest problems that economist have faced, which is 'what’s the income tax rate which maximises revenue?' And there it is, nobody’s mentioned it really, it’s there in a footnote: 48 per cent. That’s what’s there in the OBR report."
He is still to decide on applying for the Governor's position: "It’s a fascinating job, it’s a huge job, it’s a much bigger job than Mervyn’s doing at the minute. You’d need to think about how you manage that and what support you’d need. I haven’t made up my mind about this yet."