Osborne refuses to rule out cutting top tax rate to 40%

Despite being repeatedly pressed by Ed Balls at Treasury questions, the Chancellor refuses to comment on whether the Tories want to reduce the top rate from 45 per cent to 40 per cent.

After the growth figures released this morning, George Osborne was always likely to enjoy his bout with Ed Balls at today's Treasury questions. So loud was the roar from the Conservative benches when Balls stood up that the Speaker was forced to interject immediately, assuring them "you've got the man at the box for whom you were waiting".

Once the Tories had settled down, Balls began his question by noting that "after three damaging years of flatlining", today's growth figures were "welcome" (prompting another roar), before challenging Osborne on the "dodgy figures" used last week to claim that living standards were rising. Osborne, in full assassination mode, welcomed the "very important Labour economic announcement" that Balls will remain "in his job" and declared, "what they need on the other side of the House is new crystal balls". As Tory MPs guffawed, an unamused shadow chancellor replied: "very good, very good, Chancellor, a joke about my name being called Balls, fabulous."

After his announcement at the weekend that Labour would reintroduce the 50p rate tax if elected, he then invited Osborne to rule out a further reduction in the rate to 40p after 2015. He said:

Let me ask the Chancellor about the one thing that he has refused to talk about now for four days. He's delivered one massive tax cut for the richest one per cent earning over £150,000 when everybody else is worse off. The Prime Minister and the Mayor of London are now saying that they want to cut the top rate of income tax again to 40p. Is that really the Conservative Party priority? If this Chancellor still believes "we're all in this together", why won't he stand up at this despatch box now and rule out another top rate tax cut from the Conservatives in the next Parliament? Come on, George, stand up and rule it out.

To this, Osborne offered a lengthy response but notably refused to even come close to ruling out another tax cut. He said:

I'll tell you the big tax cut in this parliament, it's for working people by increasing the personal allowance to £10,000. And what is clear after the last week, is that the shadow chancellor has learned absolutely nothing from the economic mess that he brought upon this country. He said Labour should have spent more money in the boom, he set out fiscal plans that would allow billions more of borrowing, and on the top rate of tax, he announced a plan that was attacked by the Labour ministers he served in government with, by the people who lend the Labour Party money, by credible business people across the country, and the costings he produced were shot down by the Institute of Fiscal Studies last night. There couldn't have been a more disastrous policy launch in the history of the modern Labour Party. And on the day that we've learned that our economy continues to grow, isn't it clear that the anti-business Labour Party is now the biggest risk to the economic recovery.

A verbose answer, as I said, but not a word on whether the top rate will be reduced again (despite loud heckling by Balls). By refusing to rule out another "millionaire's tax cut", Osborne is handing Labour a new election attack line. Not only will Labour be able to remind voters that the Tories cut taxes for the highest 1 per cent of earners, it will be able to warn them that they're prepared to do the same again. Whether or not this is good economics (and there is no evidence that a 50p rate would genuinely damage growth), it is terrible politics. As a YouGov poll reminds us today, the public overwhelmingly support the 50p rate, with 61 per cent in favour and just 26 per cent opposed. By 45 per cent to 19 per cent, they believe it will help the economic recovery rather than damage it, and, by 50 per cent to 29 per cent, that it will raise additional revenue.

Osborne is often accused of being solely influenced by political calculations, but on this issue he is allowing ideology to trump all.

George Osborne at the World Economic Forum in Davos last week. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

Photo: Getty
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Scotland's vast deficit remains an obstacle to independence

Though the country's financial position has improved, independence would still risk severe austerity. 

For the SNP, the annual Scottish public spending figures bring good and bad news. The good news, such as it is, is that Scotland's deficit fell by £1.3bn in 2016/17. The bad news is that it remains £13.3bn or 8.3 per cent of GDP – three times the UK figure of 2.4 per cent (£46.2bn) and vastly higher than the white paper's worst case scenario of £5.5bn. 

These figures, it's important to note, include Scotland's geographic share of North Sea oil and gas revenue. The "oil bonus" that the SNP once boasted of has withered since the collapse in commodity prices. Though revenue rose from £56m the previous year to £208m, this remains a fraction of the £8bn recorded in 2011/12. Total public sector revenue was £312 per person below the UK average, while expenditure was £1,437 higher. Though the SNP is playing down the figures as "a snapshot", the white paper unambiguously stated: "GERS [Government Expenditure and Revenue Scotland] is the authoritative publication on Scotland’s public finances". 

As before, Nicola Sturgeon has warned of the threat posed by Brexit to the Scottish economy. But the country's black hole means the risks of independence remain immense. As a new state, Scotland would be forced to pay a premium on its debt, resulting in an even greater fiscal gap. Were it to use the pound without permission, with no independent central bank and no lender of last resort, borrowing costs would rise still further. To offset a Greek-style crisis, Scotland would be forced to impose dramatic austerity. 

Sturgeon is undoubtedly right to warn of the risks of Brexit (particularly of the "hard" variety). But for a large number of Scots, this is merely cause to avoid the added turmoil of independence. Though eventual EU membership would benefit Scotland, its UK trade is worth four times as much as that with Europe. 

Of course, for a true nationalist, economics is irrelevant. Independence is a good in itself and sovereignty always trumps prosperity (a point on which Scottish nationalists align with English Brexiteers). But if Scotland is to ever depart the UK, the SNP will need to win over pragmatists, too. In that quest, Scotland's deficit remains a vast obstacle. 

George Eaton is political editor of the New Statesman.