Don't drive away wealthy, says George Osborne

George Osborne today warned against driving away the wealthy after Deputy Prime Minister Nick Clegg called for a temporary tax on the rich (Reuters)

George Osborne today warned against driving away the wealthy after Deputy Prime Minister Nick Clegg called for a temporary tax on the rich.

The Chancellor said he had already taken steps to ensure the UK's highest earners pay more but insisted it was vital to hang on to entrepreneurs who would fuel the economic recovery.

Mr Clegg has called for those of "very considerable" wealth to contribute more to turning around Britain's financial fortunes.

But during a visit to Sunderland, the Chancellor said: "I am clear that the wealthy should pay more which is why in the recent budget I increased the tax on very expensive property transactions.

"But we also have to be careful as a country we don't drive away the wealth creators and the businesses that are going to lead our economic recovery."

Mr Clegg floated plans for a short-term wealth tax in a move that will be widely viewed as an attempt to reach out to Liberal Democrat grassroots ahead of next month's annual conference as well as sharpening distinctions between the party and its coalition colleagues.

The Lib Dem leader will also be acutely aware of the potential political fallout for the party of continuing cuts to welfare that hit the poorest.

But critics today pointed to the Deputy PM's decision to back a cut from 50p to 45p on the top rate of tax in the March budget, which benefited the UK's highest earners.

Mr Clegg, however, insisted the temporary tax proposal would hit those with the highest assets rather than incomes.

"If we are going to ask people for more sacrifices over a longer period of time, a longer period of belt tightening as a country, then we just have to make sure that people see it is being done as fairly and as progressively as possible," he told the Guardian.

"While I am proud of some of the things we have done as a government I actually think we need to really hard-wire fairness into what we do in the next phases of fiscal restraint. If we don't do that I don't think the process will be either socially or politically sustainable or acceptable.

"If we want to remain cohesive and prosperous as a society, people of very considerable personal wealth have got to make a bit of an extra contribution.

"In addition to our standing policy on things like the mansion tax is there a time limited contribution you can ask in some way or another from people of considerable wealth so they feel they are making a contribution to the national effort? What we are embarked on is in some senses a longer economic war rather than a short economic battle.

"The action is making sure that very high asset wealth is reflected in the tax system in the way that it isn't now, making sure that we continue to crack down very hard on tax avoidance, making sure that tax breaks don't go disproportionately to people at the very top."

Senior Tory backbencher Bernard Jenkin dismissed the move as the "politics of envy" and warned against strangling the "goose that lays the golden egg".

He told BBC Radio 4's Today programme: "If the politics of envy made a country rich, we would be a very rich country.

"I think most rich people are contributing far more in tax than other people.

"I know this is not a fashionable view, but if you go on raising tax on rich people - and that's why, in agreement with Nick Clegg we have had to cut the top rate of tax from 50p to 45p - you drive wealth abroad.

"This is a pre-conference easy clap line."

Shadow treasury minister Chris Leslie said: "Nick Clegg is once again taking the British people for fools. He talks about a tax on the wealthiest, but he voted for the tax cut for millionaires in George Osborne's budget.

"And he has supported a failing economic plan which has pushed Britain into a double-dip recession and is leading to borrowing going up by a quarter so far this year."

PA