George Osborne is pushing the Liberal Democrats to accept a cut in the top rate of income tax from 50p to 40p in next week's Budget.
Mr Osborne is keen to abolish the top rate – brought in under Labour – as a sign to business that the Tories will not penalise "wealth creators". But he realises that in return other taxation measures targeting the wealthy will have to be brought in – possibly the Liberal Democrats' "tycoon tax" – to avoid Labour's charge that the Government is the protector of the super-rich. David Cameron and Nick Clegg, alongside Mr Osborne and Danny Alexander, are due to speak by phone today about the Budget and a final meeting is scheduled for Monday.
No final decisions have yet been taken but the Liberal Democrats acknowledge they will not try to block the 50p reduction. Instead their strategy is to extract as many concessions as possible from the Tories for the move.
A study for the Treasury is expected to show the 50p rate is bringing in hundreds of millions, rather than billions, of pounds.