George Osborne defends top rate tax cut


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George Osborne today brushed off criticism of his decision to cut the top rate of tax for the countries highest earners, saying he was not prepared to keep the 50p rate "to make MPs feel good".

Giving evidence to the Commons Treasury Committee, the Chancellor said it had been necessary to reduce the rate to 45p in last week's Budget in order to make the tax system competitive.

He said that his priority had been to take action to close tax loopholes which enabled some of the wealthiest people in the country to reduce their income tax rate to zero.

"Should Britain continue with a tax rate which had been identified around the world as a deterrent to investment in Britain, simply to make MPs feel good that somehow they were levying a rate which we know people were not paying?" he demanded.

"What I have instead tried to correct is abuses in the tax system that have existed for years where people were able to claim unlimited tax reliefs to reduce their income tax rate to zero - people on five, ten million pounds a year.

"The scorecard shows that we are raising five times as much money from the wealthiest people through the tax measures we announced in the Budget."

Mr Osborne refused to rule out further cuts to the top rate - although, unlike the 50p rate, he said he had not specifically designated the 45p rate a "temporary" tax.

"The 50p rate was assigned a special status by my predecessor and by me of being temporary. I don't assign a special status to the 45p rate. It is now like all other tax rates - something we keep under review," he said.

"There was something particularly damaging about having a 50p rate of tax. I don't think that applies to a 45p rate of tax. I think we now have a competitive top rate of tax."

He said he had considered a proposal by Deputy Prime Minister Nick Clegg for a minimum rate of tax - dubbed the "tycoon tax" - but said it would have been difficult to enforce.

Instead, he had chosen to cap unlimited tax reliefs which enabled some wealthy people to escape income tax altogether. He highlighted a "stylised" example drawn up by HM Revenue and Customs.

"An individual can have an income of £10 million, and under the tax system I inherited claims loss relief for £5 million, charitable relief of £4 million, and qualifying loan interest of £1 million," he said.

"Their average income tax rate for the year is therefore 0%. They therefore of course pay no income tax whatsoever.

"I think it is very difficult to justify 0% tax rates for some of the wealthiest people in this country."

Mr Osborne defended his controversial decision to phase out aged-related allowances - dubbed the "granny tax" by critics.

"No one likes it when their allowances are frozen. These are all difficult decisions," he said.

"We are doing in this in way that will simplify the tax system. We are doing it in a way where there are no cash losers. We are also doing it at a time when we are rapidly increasing the personal allowance."


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