Osborne aims to scrap the 50p rate by 2013

Chancellor pencils in 2013 as the earliest possible opportunity to remove the top rate.

George Osborne made his ambition to scrap the 50p tax rate clear in last month's Budget. "[T]he 50 pence tax rate would do lasting damage to our economy if it were to become permanent. That is why I regard it as a temporary measure," he said.

Now, for the first time, we learn that the Chancellor has "pencilled in" 2013 as the earliest possible opportunity to remove the top rate. It's no coincidence that this is the same year that the public-sector pay freeze ends. Osborne, a keen political strategist, won't want to hand a tax cut to the richest 1 per cent until he can provide relief elsewhere. But I'd still expect Labour to contrast the "temporary" 50p rate with the "permanent" VAT rise.

HM Revenue and Customs is about to begin its review of how much money the new rate brings in and, as David Laws revealed last month in the Financial Times, the Treasury believes that the bulk of the revenue expected from the 50p rate is "lost in avoidance". I'd be surprised if the top rate raises £2.4bn a year (the initial Treasury forecast) but I'd still expect the Chancellor to benefit.

Those who claim that the new rate will bring in no revenue are fond of pointing out that Treasury receipts increased after Nigel Lawson reduced the top rate from 60 per cent to 40 per cent in 1988. But this had less to do with the Laffer curve than the fact that fiscal drag (when earnings rise faster than tax thresholds) meant high numbers of people were sucked into the 40p band, more than compensating for the removal of the 60p band.

In the meantime, Labour needs to establish a fixed position on the 50p rate. Since Ed Miliband became leader, he has described the top rate as "permanent", although Alan Johnson's tenure as shadow chancellor brought a greater emphasis on merely retaining it "for this parliament". At the same time, Ed Balls has suggested that reducing the starting threshold from £150,000 to £100,000 is still an option.

Then again, the shadow chancellor has also warned against turning "rates into principles" and has emphasised that "the principle is the tax system should be progressive". This leaves open the possibilty of Labour supporting the removal of the 50p rate in favour of a range of new property taxes.

As Balls appeared to suggest, in the event that the 50p rate raises little or no revenue, his party may need a plan B.

George Eaton is political editor of the New Statesman.

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How Theresa May laid a trap for herself on the immigration target

When Home Secretary, she insisted on keeping foreign students in the figures – causing a headache for herself today.

When Home Secretary, Theresa May insisted that foreign students should continue to be counted in the overall immigration figures. Some cabinet colleagues, including then Business Secretary Vince Cable and Chancellor George Osborne wanted to reverse this. It was economically illiterate. Current ministers, like the Foreign Secretary Boris Johnson, Chancellor Philip Hammond and Home Secretary Amber Rudd, also want foreign students exempted from the total.

David Cameron’s government aimed to cut immigration figures – including overseas students in that aim meant trying to limit one of the UK’s crucial financial resources. They are worth £25bn to the UK economy, and their fees make up 14 per cent of total university income. And the impact is not just financial – welcoming foreign students is diplomatically and culturally key to Britain’s reputation and its relationship with the rest of the world too. Even more important now Brexit is on its way.

But they stayed in the figures – a situation that, along with counterproductive visa restrictions also introduced by May’s old department, put a lot of foreign students off studying here. For example, there has been a 44 per cent decrease in the number of Indian students coming to Britain to study in the last five years.

Now May’s stubbornness on the migration figures appears to have caught up with her. The Times has revealed that the Prime Minister is ready to “soften her longstanding opposition to taking foreign students out of immigration totals”. It reports that she will offer to change the way the numbers are calculated.

Why the u-turn? No 10 says the concession is to ensure the Higher and Research Bill, key university legislation, can pass due to a Lords amendment urging the government not to count students as “long-term migrants” for “public policy purposes”.

But it will also be a factor in May’s manifesto pledge (and continuation of Cameron’s promise) to cut immigration to the “tens of thousands”. Until today, ministers had been unclear about whether this would be in the manifesto.

Now her u-turn on student figures is being seized upon by opposition parties as “massaging” the migration figures to meet her target. An accusation for which May only has herself, and her steadfast politicising of immigration, to blame.

Anoosh Chakelian is senior writer at the New Statesman.

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