Nick Clegg is under pressure from senior Liberal Democrats to fight the 2015 election on a pledge to restore the 50p rate of tax on earnings over £150,000 a year, which will be reduced to 45p.
With Labour expected to promise in its next election manifesto to bring back the 50p top rate, the Conservatives could find themselves isolated as they defend what Labour has dubbed a “tax cut for millionaires”.
Today the Lib Dems joined Labour in criticising George Osborne after the Chancellor suggested that the case of Mick Philpott, the unemployed man who killed six of his 17 children in a fire, reinforced the need for welfare reform.
Danny Alexander, the Chancellor’s Lib Dem deputy who is normally loyal to his Treasury boss, said: “George Osborne is right that there needs to be a wide debate about the future of our welfare system, but the Philpott case is an individual tragedy. Children have died in that case. I think that’s where we should let that case lie. I wouldn’t want to connect that to the much wider need to reform our welfare system.”
Senior Lib Dems say they are appalled by Mr Osborne’s attempt to exploit for political gain what they regard as an exceptional case. Lord Oakeshott, the party’s former Treasury spokesman, said: “George Osborne is not fit to be Chancellor if he cannot see it is wrong to play politics with the deaths of six children.
“You can forgive his immaturity and inexperience in high office, but not this callous cynicism.”
Mr Clegg joined forces with David Cameron last year to block Mr Osborne’s original proposal to reduce the top tax rate from 50p to 40p, but accepted a cut to 45p. The Lib Dem leader’s instinct now is to leave the top rate at 45p and extend the party’s drive to tax wealth rather than income – for example, through the proposed “mansion tax” on homes worth more than £2m.
But Mr Clegg faces a battle with his own party at its annual conference in September over what its 2015 manifesto should say on tax.
Tim Farron, its president, told the Lib Dem Voice website: “Cutting the top rate was a stupid thing to do. It probably raised up to £3bn a year. We should pledge to restore the 50p rate at the next election. It’s not enough to be fair, you have to be seen to be fair.”
Lord Oakeshott said: “In such hard times, we should never have rolled over when the Tories wanted to cut the 50p rate unless we got a mansion tax in return. At the next election, both the mansion tax and a 50p rate should be at the forefront of Lib Dem tax policy.”
Gareth Epps, a member of the Lib Dem tax working group and the co-chair of the Social Liberal Forum pressure group, said: “While the Treasury’s own figures about the 50p are highly questionable, the politics of cutting tax for the very rich make no sense; there is no reason why a 50p rate shouldn’t be part of a solution for tough times.
“However, a higher top rate on its own will not do nearly enough to make the changes we want to see. So we need to see the end to protection of vested interests in the form of unearned income and wealth. A land value tax set against large property estates and developer interests would remedy an unfairness which is centuries-old. That should be a manifesto commitment – not just the first step of a mansion tax.”
Now that the Lib Dems have secured their 2010 pledge to raise the tax threshold to £10,000 from next year, their next manifesto is likely to say it should rise to £12,500, the level of the minimum wage.
Labour has issued figures claiming that a one-earner family will lose an average of £4,000 in the financial year starting today. It said calculations by the Institute for Fiscal Studies showed that gains from the higher personal allowance would be swamped by higher VAT and cuts to tax credits and child benefit.
Ed Balls, the shadow Chancellor, said: “The whole country will today see whose side this Conservative-led Government is really on and who is paying the price for their total economic failure. David Cameron and George Osborne are today giving millionaires an average tax cut of £100,000 while they make millions of pensioners and working people on middle and low incomes worse off.”
Mr Cameron yesterday defended the Chancellor’s controversial remarks on the Philpott case, saying he had stressed that Philpott was “responsible” for his crimes.
“What the Chancellor went on to say is that we should ask some wider questions about our welfare system, how much it costs and the signals it sends,” the Prime Minister said. “We do want to make clear that welfare is there to help people who work hard and should not be there as a lifestyle choice.”
A YouGov poll for Channel 5 News found that 43 per cent of people believe the Philpott case “does raise some serious questions about the benefits system”, but a majority (51 per cent) think it was “just the actions of an evil man and we shouldn’t draw wider lessons from it”.