Does George Osborne have a political death wish? If today’s Guardian is to be believed, the answer is yes. The Chancellor is reportedly planning to cut the top rate of tax from 50p to 40p in next week’s Budget, an act that would be an electoral gift to Labour. “A tax cut for the 1 per cent”, “Making the rich richer”. The attack lines write themselves.
Every poll ever conducted on the subject has found overwhelming public support for the 50p rate (a YouGov poll last September, for instance, found that 59 per cent oppose its abolition, with just 23 per cent in favour. Significantly, 50 per cent of Tory voters supported the rate, with 37 per cent opposed.) In fact, more voters than not would like to see it raised to 60p (a recent ComRes poll found that 48 per cent would support this move, with 33 per cent opposed).
Osborne’s justification would be that the 50p rate is raising significantly less revenue than expected – a Treasury study will reportedly show that it is is bringing in hundreds of millions, rather than billions, of pounds. But even here the politics are complicated for the Chancellor. If the 50p rate is raising little or no revenue it’s because people are avoiding it. In most voters’ eyes, that’s an argument for clamping down on tax loopholes, not for cutting taxes for the highest earners. The abolition of the 50p rate at a time when real incomes are plummeting would definitively signal that we’re not “all in this together”.
At the behest of the Lib Dems, Osborne would replace the top rate with a wealth-based levy or a series of anti-avoidance measures, and announce a significant increase in the personal allowance. In an op-ed for today’s Guardian, David Laws and Tim Farron, from opposing wings of their party, put forward a series of joint demands:
First, clamp down hard on avoidance – with specific measures, including on stamp duty, and a tough, new, general anti-avoidance rule. Second, make it harder for wealthy foreigners to shelter their money from tax. Tax wealth – including property – more.
And third, stop some of those in the top 1% from paying such a tiny share of their income in tax (think Mitt Romney’s 13.9% tax rate!). Nick Clegg’s proposal for a ‘tycoon tax’, a basic minimum rate of tax on all income, is a very good idea.
But even if some or all of these demands are met, the headlines after Budget day will still be “Osborne slashes income tax for the richest”. Surely the Chancellor, touted as the Tories’ pre-eminent strategist, can’t want that? To which some reply, he doesn’t. Today’s FT reports that Osborne is only considering a more modest reduction to 45 per cent, where the rate might raise more revenue.
Unlike when Nigel Lawson slashed the top rate from 60 per cent to 40 per cent [to audible gasps from the chamber] in his infamous 1988 Budget, a cut in the rate has been trailed in advance. Perhaps the fall-out will be limited, some Tories hope. If the 50p rate has to go, and Osborne has always described it as a “temporary” measure, then now, three years ahead of the election, is the time to act. But even for Osborne, an inveterate gambler, a cut in the top rate may be an audacious step too far. The Chancellor is flirting with political disaster.