Andrew Grice: How the Chancellor pulled off the 50p tax cut

George Osborne's judgement was that it was 'now or never' to cut the top rate

Share
Related Topics

Only a month ago, most Conservative MPs did not believe that George Osborne would dare to cut the 50p top rate of tax. It might be right to scrap the rate introduced by the Brown government in 2010 on the grounds that it was bringing in less than expected. But the politics of a tax cut for the top 1 per cent with incomes over £150,000 a year were lousy.

A relatively small number of Tory right-wingers, including John Redwood, David Ruffley and David Davis, were lobbying for an end to the 50p band but they didn't really expect to win. More than 500 business-owners and entrepreneurs wrote a letter to the Daily Telegraph. The business world also funded an effective "scrap the 50p tax" campaign. But early action still looked unlikely. "We were going through the motions," one Tory MP admitted.

The game changed when Vince Cable suggested in a BBC Radio interview that his party would allow the 50p rate to be cut if the Tories introduced a mansion tax on homes worth more than £2m.

Mr Osborne sensed an opportunity. He believed the top rate, higher than many competitors, deterred entrepreneurs and sent a signal that the UK was anti-business. "His judgement was that it was 'now or never'," one Tory source said yesterday.

His resolve is believed to have been hardened when he received predictions from HM Revenue & Customs on what the 50p rate raised in its first financial year, 2010-11. It is likely to be hundreds of millions rather than the £1.3bn forecast.

The Chancellor's plan was a surprise to the three other members of "the Quad," the Coalition's power group, where the key Budget trade-offs were negotiated – Mr Osborne, David Cameron, Nick Clegg and Danny Alexander. Initially, Mr Osborne looked isolated.

The Chancellor made clear he would like to abolish the top rate entirely – meaning that someone with an income of £150,000 would pay the higher 40p rate which starts to bite on incomes `of about £43,000. Mr Clegg balked – and the Quad agreed that it would be safer to cut the top rate to 45p.

The Liberal Democrats extracted two prices. Number one was "further and faster" progress towards a £10,000 a year personal tax-free allowance. This will rise to £8,105 next month and Mr Osborne is today expected to announce that it will increase to about £9,000 in April next year. Mr Clegg also demanded that the Coalition would raise more from the rich in wealth taxes than the revenue they would lose from lowering the top rate. Mr Cameron vetoed a mansion tax. Eventually, Mr Clegg accepted a package of wealth taxes.

He is well aware that Mr Osborne will have a hard sell. Labour can hardly believe its luck, thinking that the Chancellor is walking into a trap left behind by Gordon Brown. But Mr Osborne is doing so with his eyes open, to set a trap for Labour: will it promise to restore the 50p if it wins the next election? I doubt Labour will answer.

React Now

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
iJobs Job Widget
iJobs General

Tradewind Recruitment: Phase Co-ordinator for Foundation and Key Stage 1

Negotiable: Tradewind Recruitment: Phase Co-ordinator for Foundation and Key S...

Tradewind Recruitment: SEN Teacher

Negotiable: Tradewind Recruitment: SEN Teacher We have a fantastic special n...

Tradewind Recruitment: History Teacher

Negotiable: Tradewind Recruitment: My client is an 11-18 all ability co-educat...

Tradewind Recruitment: Year 6 Teacher

£100 - £150 per day: Tradewind Recruitment: Year 6 Teacher Birmingham Jan 2015...

Day In a Page

Read Next
 

If I were Prime Minister: Every privatised corner of the NHS would be taken back into public ownership

Philip Pullman
 

Errors & Omissions: Magna Carta, sexing bishops and ministerial aides

John Rentoul
Isis hostage crisis: The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power

Isis hostage crisis

The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power, says Robert Fisk
Missing salvage expert who found $50m of sunken treasure before disappearing, tracked down at last

The runaway buccaneers and the ship full of gold

Salvage expert Tommy Thompson found sunken treasure worth millions. Then he vanished... until now
Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

Maverick artist Grayson Perry backs our campaign
Assisted Dying Bill: I want to be able to decide about my own death - I want to have control of my life

Assisted Dying Bill: 'I want control of my life'

This week the Assisted Dying Bill is debated in the Lords. Virginia Ironside, who has already made plans for her own self-deliverance, argues that it's time we allowed people a humane, compassionate death
Move over, kale - cabbage is the new rising star

Cabbage is king again

Sophie Morris banishes thoughts of soggy school dinners and turns over a new leaf
11 best winter skin treats

Give your moisturiser a helping hand: 11 best winter skin treats

Get an extra boost of nourishment from one of these hard-working products
Paul Scholes column: The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him

Paul Scholes column

The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him
Frank Warren column: No cigar, but pots of money: here come the Cubans

Frank Warren's Ringside

No cigar, but pots of money: here come the Cubans
Isis hostage crisis: Militant group stands strong as its numerous enemies fail to find a common plan to defeat it

Isis stands strong as its numerous enemies fail to find a common plan to defeat it

The jihadis are being squeezed militarily and economically, but there is no sign of an implosion, says Patrick Cockburn
Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action

Virtual reality: Seeing is believing

Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action
Homeless Veterans appeal: MP says Coalition ‘not doing enough’

Homeless Veterans appeal

MP says Coalition ‘not doing enough’ to help
Larry David, Steve Coogan and other comedians share stories of depression in new documentary

Comedians share stories of depression

The director of the new documentary, Kevin Pollak, tells Jessica Barrett how he got them to talk
Has The Archers lost the plot with it's spicy storylines?

Has The Archers lost the plot?

A growing number of listeners are voicing their discontent over the rural soap's spicy storylines; so loudly that even the BBC's director-general seems worried, says Simon Kelner
English Heritage adds 14 post-war office buildings to its protected lists

14 office buildings added to protected lists

Christopher Beanland explores the underrated appeal of these palaces of pen-pushing
Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Scientists unearthed the cranial fragments from Manot Cave in West Galilee