Nick Clegg under pressure from Lib Dem activists over 50p top rate of income tax

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Nick Clegg is under pressure from Liberal Democrat activists to pledge to bring back a 50p rate of tax on income over £150,000 a year even though he wants to keep the current 45p rate.

The party’s Federal Policy Committee has defied Mr Clegg by insisting that the Lib Dems’ annual conference in September should vote on a plan to restore the 50p rate, which the Coalition cut to 45p from April.

The Glasgow conference, which decides the party’s policy, will choose between two options – keeping the 45p rate and returning to 50p if an independent review found this would raise more revenue than it would cost to implement.

The Lib Dems long favoured a 50p rate but abandoned the policy in 2006. Labour introduced such a band just before the 2010 election, after keeping the top rate at 40p for most of its 13 years in power.

The issue has become symbolic for some Lib Dems as they seek to set out a distinctive policy to the Conservatives at the next election. Labour attacked what it called a “tax cut for millionaires” when the 45p rate took effect in April and has said it would reverse the move if it were in  power now. Some Lib Dem MPs and activists think Mr Clegg was wrong to allow the Chancellor George Osborne to reduce the top rate.

Linda Jack, chair of the Liberal Left group, said yesterday: “At a time when the evidence is that those at the top of the income scale are getting richer while the poor and middle earners are having their income squeezed, it was nonsensical and unfair for the Government to abandon the 50p tax rate.”

She added: “Those who created austerity are now its beneficiaries. The additional revenue could be used to mitigate the worst impact of austerity and contribute to building the ‘stronger economy’ and, in particular,  the ‘fairer society’ Liberal Democrats are committed to.  By readopting this as party policy in September, the party will send a message to the electorate that not all of us have abandoned our values. I would urge all those activists attending to reassert their own commitment to fairness by voting in favour.”

Some senior figures, including the party president Tim Farron, are sympathetic to pledging a 50p rate. But David Laws, a close Clegg ally who heads the group drawing up the manifesto, argued against the move on the Federal Policy Committee before being outvoted.

The conference debate may be seen as a test of whether the Lib Dems want to be a “party of government”, as Mr Clegg wants, or to return to  the mindset of an opposition party that scoops up protest votes.

Mr Clegg and Mr Laws are sceptical about raising the top rate because they suspect high earners might find ways to avoid paying it. They are expected to urge the party to focus on taxes on wealth, such as its flagship plan for a mansion tax on homes worth more than £2m and a land value tax. The manifesto is also expected to promise to raise the £10,000 tax threshold, a key Lib Dem promise in 2010 which will be achieved by the Coalition, to £12,500 in the next parliament, so that no one paid the national minimum wage would pay income tax.

Treasury figures suggest the introduction of the 50p rate in 2010 raised about £1bn, only a third of the amount expected, and that rich people shifted more than £16bn of income into another tax year to avoid it.  The Tories claim that the number of people declaring earnings of more than £1m a year dropped from 16,000 to 6,000, losing £7bn in revenue.