Is Osborne really about to give people on £100k a tax cut?

The coalition’s travails over child benefit mean Osborne may revisit his decision to raise the perso

As we close in on the Budget, most eyes are still fixed on the fate of the 50p tax rate. Ignore for a moment some of the squeals from Labour on this issue (more in excited anticipation that it will be axed than horror) and spare a thought for the dwindling band of true Tory modernisers. Their two central ambitions over recent years have been to demonstrate an unswerving commitment to the National Health Service, and to show that they could govern the economy – and tax policy in particular – in the interests of the broad majority rather than the affluent elite. They are struggling to believe that, having watched the coalition conspicuously squander the first of these strategic objectives, it could be planning to deliver the last rites to the second, too.

Yet whatever the decision on the 50p tax rate, the heated debate over it risks obscuring another more nuanced, but still highly revealing choice facing Goerge Osborne. Who should benefit from the widely expected and costly increase in personal tax allowances: the vast majority of all taxpayers, including individuals to over £100,000 a year (and indeed households on £200,000), or just basic-rate taxpayers? It's an important issue in its own right – and one that has been given fresh impetus by the coalition's travails over child benefit.

To understand why this is the case, turn the clock back to 2010 when the personal allowance was first increased and the decision taken to limit the gains to basic-rate taxpayers. This was achieved by lowering the income threshold at which the 40p rate starts in order to cancel out the gains for higher-rate taxpayers – leaving them no better or worse off. Creating more 40p tax-rate payers has obvious political downsides. However, it makes the personal allowances policy both less regressive and significantly less costly. The savings could be used to help reverse this year's cuts to tax credits.

One of the main reasons why there was such a hostile reaction from many quarters to the initial decision to target the gains from the personal allowance in 2010 was the disastrous way it got caught up with Osborne's proposal to abolish child benefit for households with a higher-rate taxpayer. It meant those basic-rate taxpayers who found themselves shunted into the 40p rate not only faced a higher marginal tax rate but were also set to lose £1,750 of child benefit if they had two children.

This was pure political poison. Consequently, when a further increase in the personal allowance was announced in 2011, a different approach was adopted and the gains went to higher-rate taxpayers, too.

Which brings us to next week's Budget and how the decision that is set to be made on revising the policy on child benefit could also affect the one on personal allowances.

To date, the coalition's argument on child benefit has been that, given the scale of the deficit, the state can no longer afford to pay it to households with someone earning above £42,500; indeed, it is also argued that it is morally unfair to ask low-income families to contribute towards higher earners' child benefit. In which case you might well ask why we can afford tax cuts for individuals earning £100,000 (and households with a joint income over £200,000), regardless of whether they have children. You might also ask why it is fair to ask the same low-income family to contribute towards the cost of these tax cuts for the affluent.

I don't know how the coalition proposes to answer this. But as things stand they'll need to do so next Wednesday. Pity the poor soul in the Treasury being tasked with drafting the "lines to take" for ministers.

There is, however, a potential get-out clause for them. The approach now being touted as the likely change to Osborne's child benefit policy is to means-test the benefit at a higher level of income – say, £50,000 rather than £42,500. Whatever other problems this creates (and there are many), it will make it possible to restrict gains from an increased personal allowance to basic-rate taxpayers without creating the toxic side effect of stripping child benefit from those who get tipped into the 40p tax band. The coalition could, if it so wished, show that its priority really is basic-rate taxpayers (and in doing so save money).

We'll know soon enough. My tentative hunch is that the government won't opt to restrict the gains from increased allowances to 20p tax-rate payers – even though it is clearly more progressive and cheaper. I doubt the Chancellor will be willing to incur the price of creating more 40p taxpayers. If this is the case, the coalition will have some explaining to do, not least to its own backbench rebels on child benefit, about why a family on £50,000 should lose cash support while individuals without kids earning double that amount should get a tax cut.

And all this, of course, is before we get to the decision on whether to abolish the 50p tax rate . . .

Gavin Kelly is a former adviser to Downing Street and the Treasury. He tweets @GavinJKelly1.

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Voters are turning against Brexit but the Lib Dems aren't benefiting

Labour's pro-Brexit stance is not preventing it from winning the support of Remainers. Will that change?

More than a year after the UK voted for Brexit, there has been little sign of buyer's remorse. The public, including around a third of Remainers, are largely of the view that the government should "get on with it".

But as real wages are squeezed (owing to the Brexit-linked inflationary spike) there are tentative signs that the mood is changing. In the event of a second referendum, an Opinium/Observer poll found, 47 per cent would vote Remain, compared to 44 per cent for Leave. Support for a repeat vote is also increasing. Forty one per cent of the public now favour a second referendum (with 48 per cent opposed), compared to 33 per cent last December. 

The Liberal Democrats have made halting Brexit their raison d'être. But as public opinion turns, there is no sign they are benefiting. Since the election, Vince Cable's party has yet to exceed single figures in the polls, scoring a lowly 6 per cent in the Opinium survey (down from 7.4 per cent at the election). 

What accounts for this disparity? After their near-extinction in 2015, the Lib Dems remain either toxic or irrelevant to many voters. Labour, by contrast, despite its pro-Brexit stance, has hoovered up Remainers (55 per cent back Jeremy Corbyn's party). 

In some cases, this reflects voters' other priorities. Remainers are prepared to support Labour on account of the party's stances on austerity, housing and education. Corbyn, meanwhile, is a eurosceptic whose internationalism and pro-migration reputation endear him to EU supporters. Other Remainers rewarded Labour MPs who voted against Article 50, rebelling against the leadership's stance. 

But the trend also partly reflects ignorance. By saying little on the subject of Brexit, Corbyn and Labour allowed Remainers to assume the best. Though there is little evidence that voters will abandon Corbyn over his EU stance, the potential exists.

For this reason, the proposal of a new party will continue to recur. By challenging Labour over Brexit, without the toxicity of Lib Dems, it would sharpen the choice before voters. Though it would not win an election, a new party could force Corbyn to soften his stance on Brexit or to offer a second referendum (mirroring Ukip's effect on the Conservatives).

The greatest problem for the project is that it lacks support where it counts: among MPs. For reasons of tribalism and strategy, there is no emergent "Gang of Four" ready to helm a new party. In the absence of a new convulsion, the UK may turn against Brexit without the anti-Brexiteers benefiting. 

George Eaton is political editor of the New Statesman.