Support 100 years of independent journalism.

  1. Business
  2. Economics
9 January 2012updated 27 Sep 2015 1:46am

Tories abandon plans to abolish 50p tax rate — for now

The top rate of tax will stay in place until 2015, according to the latest reports.

By Samira Shackle

The 50p tax rate has been a persistent political headache for the Tories — and now it looks as if it is not going anywhere until 2015.

David Cameron and George Osborne have always maintained that the top rate of tax, introduced by Gordon Brown in 2010, was a temporary measure. It was suggested in August that it could be cut to 45p as soon as this year or next.

However, the Telegraph today reports that the Prime Minister and Chancellor have concluded that cutting the tax rate is politically impossible in the near future, as they wish to avoid looking like they are pandering to the rich.

Asked about the 50p tax rate on the Andrew Marr Show yesterday, Cameron said:

Sign up for The New Statesman’s newsletters Tick the boxes of the newsletters you would like to receive. A weekly newsletter helping you fit together the pieces of the global economic slowdown. Quick and essential guide to domestic and global politics from the New Statesman's politics team. The New Statesman’s global affairs newsletter, every Monday and Friday. The best of the New Statesman, delivered to your inbox every weekday morning. The New Statesman’s weekly environment email on the politics, business and culture of the climate and nature crises - in your inbox every Thursday. Our weekly culture newsletter – from books and art to pop culture and memes – sent every Friday. A weekly round-up of some of the best articles featured in the most recent issue of the New Statesman, sent each Saturday. A newsletter showcasing the finest writing from the ideas section and the NS archive, covering political ideas, philosophy, criticism and intellectual history - sent every Wednesday. Sign up to receive information regarding NS events, subscription offers & product updates.

When you’re taking the country through difficult times and difficult decisions, you’ve got to take the country with you. That means permanently trying to make the argument that what you’re doing is fair and seen to be fair.

Content from our partners
Small businesses can be the backbone of our national recovery
Railways must adapt to how we live now
“I learn something new on every trip"

Given that the public sector pay freeze has effectively been extended until 2015, it would be bad politics to remove the 50p rate. Osborne actually said in his 2009 Conservative conference speech that it would be “grossly unfair” to scrap the top rate of tax while public sector pay remained frozen. Polls have shown that the public broadly support the 50p rate.

On top of the issue of presentation is, simply, the economics. HMRC is currently preparing a report on the top tax rate. While earlier reports suggested that it would find only modest economic returns, it is now expected to show a “surge” in revenues totalling hundreds of millions of pounds in the first year alone. This is despite Osborne’s declaration in the last Budget that high rates of personal tax “crush enterprise, undermine aspiration and often undermine tax revenues as people avoid them”.

The 50p rate has been a sore point in the coalition, with Liberal Democrats arguing that it must not be removed unless it is replaced by another tax on wealth. Danny Alexander memorably declared that anyone who wanted to scrap the tax was in “cloud cuckoo land”, although he was soon contradicted. After Nick Clegg’s concession last week that the mansion tax is unlikely to happen, my colleague George Eaton noted:

The corollary of this is that the 50p tax rate is likely to remain for the duration of the parliament. The Lib Dems will not accept the abolition of the top rate unless it is replaced with some kind of wealth tax.

Yet backbench Tories remain opposed to the tax. In the Budget in March, Osborne is expected to indicate that the decision to retain the 50p rate until 2015 is still under review.

Change may be off the table for the moment, but the pressure from backbenchers on Conservative top command will remain.