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Cath Everett

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PM and Chancellor plan top tax rate cut to 45p

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David Cameron and George Osborne plan to cut the top rate of income tax from 50 pence to 45 pence as early as next March.

According to the Daily Mail, the Prime Minister and Chancellor decided to back the move after seeing Treasury figures, which showed that the current 50 pence rate for those earning more than £150,000 per annum generates only marginal financial gains for the government due to tax evasion.

Number 10 sources said that cutting the top rate of tax to 45 pence would cost the country at most £750 million a year, figures that are likely to pave the way for the Chancellor to offer high earners a tax cut in the next Budget.

Although Labour’s decision to raise the top tax rate from 40% to 50% during the last financial year generated up to £2.4 billion, officials believe that 70% of the money – about £1.65 billion – would be collected even if the top rate was only 45 pence.

Some, including Robert Chote, head of the Office of Budget Responsibility, expect that gains between 45 pence and 50 pence will be revealed to be almost zero when final figures come in because of tax avoidance ploys such as putting money offshore or into pensions.

Evidence gathered by HM Revenue & Customs from personal tax returns over the next four months will therefore be used to make a case that the 50 pence rate is not working. Its analysis is due to be completed after the last self-assessment forms are returned next January.

Although a tax cut would please the right wing of the Conservative party, it is likely to lead to tensions with Liberal Democrat partners. Lib Dem Chief Secretary to the Treasury Danny Alexander claimed last week that those calling for a cut such as London Mayor Boris Johnson were living in “cloud cuckoo land”.

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