Plans to soften the blow from withdrawing child benefit from higher-rate taxpayers will be announced in the Budget later this month.
George Osborne is ready to make a partial climbdown in the face of a growing revolt by Conservative MPs, who are worried that the move would alienate the party's natural middle-class supporters. The Chancellor announced in 2010 that child benefit would be axed from next January from families with at least one earner paying the 40p in the pound rate higher rate of tax, which is due to bite on annual incomes of £42,475 from April.
After pressure from David Cameron, Mr Osborne is likely to raise the cut-off point for child benefit to about £50,000. "A lot of options are on the table and this is the leading one," a government source said yesterday. "There is a big effort going on to take some of the sting out of the child benefit change."
Amid deadlock between the two Coalition parties over key elements of the March 21 Budget, Mr Cameron and Mr Osborne will seek to broker a deal in intensive talks this week with Nick Clegg and Danny Alexander, the Liberal Democrat Chief Treasury Secretary – the Coalition's key decision-making group known as "the quad".
The Chancellor is resisting Lib Dem demands for a wealth tax – either through a mansion tax on homes worth more than £2m; a hike in council tax payments for the most expensive properties or halving tax relief on pension contributions for taxpayers on the 40 per cent rate to 20 per cent.
The Chancellor is also under pressure from Conservative MPs and business to reduce the 50p top rate of tax on earnings over £150,000. But Mr Cameron and Mr Osborne are nervous that this would be unpopular with voters and reinforce the Tories' image as the "party of the rich".