Labour have announced that if elected it would introduce a 45 per cent income tax rate on incomes over £80,000, and a 50 per cent rate on incomes over £123,000.

A new IFS Briefing Note analyses the impact of this proposal if it were introduced UK-wide immediately.

The authors of the analysis are Stuart Adam, Andrew Hood, Robert Joyce and David Phillips.

Their findings include:

1. Labour proposes to increase income tax for the 1.3 million people with taxable income exceeding £80,000 per year.

The highest-income 2% of adults, or 4% of income taxpayers. Currently this small group receive more than 20% of all taxable income and pay more than 40% of all income tax.

2. The tax revenue that Labour’s proposal would raise is highly uncertain.

If no one changed their behaviour in response, it would raise around £7 billion per year. But some of those affected would respond by reducing their taxable incomes, reducing the amount raised. The size of the response is highly uncertain and the revenue raised is highly sensitive to the size of the response. Labour expects the policy to raise in the region of £4.5 billion per year. Based on the available evidence this looks a little on the optimistic side, but it is entirely possible. However, it is also possible that the policy would raise nothing.

3. High-income individuals could respond to the policy in a number of ways.

One straightforward response for many would be to increase their contributions to private pensions, which bring up-front income tax relief. They could also work less, make greater efforts to avoid or evade tax, emigrate, or not come to the UK in the first place.

4, Losses in cash terms would be highly concentrated on those with the highest incomes.

If no one changed their behaviour then the 500,000 people with income between £80,000 and £100,000 would lose an average of £400 a year, while 50,000 people with income over £500,000 would all lose at least £22,900 a year.

5. Labour’s proposal would be the latest in a series of income tax increases for this group.

Since April 2010 the introduction of the 50% rate (later reduced to 45%), the withdrawal of the personal allowance from those with incomes above £100,000, and a succession of restrictions to tax relief on pension contributions have all increased the income tax paid by those with the highest incomes.

6. The proposals would miss an opportunity to rationalise the income tax system for those on higher incomes.