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

Software Developer

£35000 - £45000 Per Annum Pensions Scheme After 6 Months: Clearwater People So...

Systems Analyst / Business Analyst - Central London

£35000 - £37000 per annum + Benefits: Ashdown Group: Systems Analyst / Busines...

Senior Change Engineer (Network, Cisco, Juniper) £30k

£30000 - £35000 per annum + Benefits: Ampersand Consulting LLP: Senior Change ...

Senior Change Engineer (Windows, Linux, VMWare) - London £35k

£30000 - £35000 per annum + Benefits: Ampersand Consulting LLP: Senior Change ...

Day In a Page

Read Next
David Cameron has painted a scary picture of what life would be like under a Labour government  

You want constitutional change? Fixed-term parliaments have already done the job

Steve Richards
Nigel Farage has backed DJ Mike Read's new Ukip song  

Ukip Calypso by Mike Read? The horror! The horror!

Patrick Strudwick
Oscar Pistorius sentencing: The athlete's wealth and notoriety have provoked a long overdue debate on South African prisons

'They poured water on, then electrified me...'

If Oscar Pistorius is sent to jail, his experience will not be that of other inmates
James Wharton: The former Guard now fighting discrimination against gay soldiers

The former Guard now fighting discrimination against gay soldiers

Life after the Army has brought new battles for the LGBT activist James Wharton
Ebola in the US: Panic over the virus threatens to infect President Obama's midterms

Panic over Ebola threatens to infect the midterms

Just one person has died, yet November's elections may be affected by what Republicans call 'Obama's Katrina', says Rupert Cornwell
Premier League coaches join the RSC to swap the tricks of their trades

Darling, you were fabulous! But offside...

Premier League coaches are joining the RSC to learn acting skills, and in turn they will teach its actors to play football. Nick Clark finds out why
How to dress with authority: Kirsty Wark and Camila Batmanghelidjh discuss the changing role of fashion in women's workwear

How to dress with authority

Kirsty Wark and Camila Batmanghelidjh discuss the changing role of fashion in women's workwear
New book on Joy Division's Ian Curtis sheds new light on the life of the late singer

New book on Ian Curtis sheds fresh light on the life of the late singer

'Joy Division were making art... Ian was for real' says author Jon Savage
Sean Harris: A rare interview with British acting's secret weapon

Sean Harris: A rare interview with British acting's secret weapon

The Bafta-winner talks Hollywood, being branded a psycho, and how Barbra Streisand is his true inspiration
Tim Minchin, interview: The musician, comedian and world's favourite ginger is on scorching form

Tim Minchin interview

For a no-holds-barred comedian who is scathing about woolly thinking and oppressive religiosity, he is surprisingly gentle in person
Boris Johnson's boozing won't win the puritan vote

Boris's boozing won't win the puritan vote

Many of us Brits still disapprove of conspicuous consumption – it's the way we were raised, says DJ Taylor
Ash frontman Tim Wheeler reveals how he came to terms with his father's dementia

Tim Wheeler: Alzheimer's, memories and my dad

Wheeler's dad suffered from Alzheimer's for three years. When he died, there was only one way the Ash frontman knew how to respond: with a heartfelt solo album
Hugh Bonneville & Peter James: 'Peter loves his classic cars; I've always pootled along fine with a Mini Metro. I think I lack his panache'

How We Met: Hugh Bonneville & Peter James

'Peter loves his classic cars; I've always pootled along fine with a Mini Metro. I think I lack his panache'
Bill Granger recipes: Our chef's heavenly crab dishes don't need hours of preparation

Bill Granger's heavenly crab recipes

Scared off by the strain of shelling a crab? Let a fishmonger do the hard work so you can focus on getting the flavours right
Radamel Falcao: How faith and love drive the Colombian to glory

Radamel Falcao: How faith and love drive the Colombian to glory

After a remarkable conversion from reckless defender to prolific striker, Monaco's ace says he wants to make his loan deal at Old Trafford permanent
Terry Venables: Premier League managers must not be allowed to dictate who plays and who does not play for England

Terry Venables column

Premier League managers must not be allowed to dictate who plays and who does not play for England
The Inside Word: Brendan Rodgers looks to the future while Roy Hodgson is ghost of seasons past

Michael Calvin's Inside Word

Brendan Rodgers looks to the future while Roy Hodgson is ghost of seasons past