David Cameron abandons plans to scrap 50p tax - at least until 2015
The Telegraph: The Prime Minister is to abandon plans to scrap the 50p rate of income tax amid increasing pressure from business leaders and backbench Tories, The Daily Telegraph can disclose.
The Prime Minister and George Osborne are understood to have concluded that abolishing the levy is politically impossible in the near future amid fears that they will be accused of pandering to the wealthy.
Her Majesty’s Revenue and Customs is preparing a report for the Chancellor on the proceeds raised from the 50p rate, introduced by Gordon Brown in 2010.
Mr Cameron has come under increasing pressure from business leaders and backbench Tories to scrap the tax to stimulate the economy. He has said it should only be temporary and he is sceptical that it raises money.
However, the HMRC report is expected to show a “surge” in revenues totalling hundreds of millions of pounds from the first year — undermining the economic case for scrapping the levy. Ministers are also thought to believe that the decision effectively to extend the public sector pay freeze until 2015 has postponed the removal of the 50p rate.
A senior Government source said last night: “This is not now something we are moving on any time soon.” Another source said: “We are repeatedly emphasising the need for those with the broadest shoulders to do more.
“So we can hardly turn around and start cutting taxes for them first. George [Osborne] said last year, that it was not the time to scrap the 50p rate and that is even more the case now as the economic situation has deteriorated.”
Mr Cameron yesterday announced a crackdown on executive pay. Ministers indicated that a “catch all” law to stop tax avoidance could be introduced in spring.
The Coalition is increasingly sensitive to accusations that it is looking after the rich at a time of public sector austerity. Downing Street polling shows the 50p rate is relatively popular.
The Liberal Democrats have also warned that the higher rate should not be reduced unless other taxes on wealth were introduced.
However, the Conservatives have repeatedly said the 50p rate should be temporary. Mr Osborne is expected to indicate in the Budget in March that a decision to maintain the top rate until 2015 remains under review.
The Daily Telegraph understands that an annual assessment of the tax’s impact on enterprise will be made – and the levy will be scrapped before 2015 only in the “unlikely event” that evidence shows that it is damaging the economy.
When asked about the 50p rate in an interview yesterday, the Prime Minister said: “When you’re taking the country through difficult times and difficult decisions, you’ve got to take the country with you. That means permanently trying to make the argument that what you’re doing is fair and seen to be fair.”
The decision to postpone the removal of the higher rate is likely to anger business leaders and back-bench Tories, who have repeatedly claimed that the levy is driving wealthy entrepreneurs abroad. Boris Johnson, the London mayor, has also warned of the damage the 50p rate is causing the City.
When it was introduced, senior Labour figures insisted that it was a temporary measure. Last year, more than 30 business leaders wrote to this newspaper saying that the removal of the levy would help the economy and support employment. Among the signatories to the letter were the chief executives of advertising firms, building companies, accountants and power providers.
The HMRC report, to be delivered after Jan 31, will defy predictions that top earners will avoid paying the 50p rate.
Labour predicted revenues of more than £2 billion a year from the levy.
It is now thought that the revenues will only begin falling “over time” as wealthier taxpayers develop ways of circumventing the higher rate, faced by those earning more than £150,000.
“The Treasury will set up an annual analysis of the 50p rate as the thinking now is that the more corrosive effects of the levy will take time to emerge,” said one source.
Senior Treasury sources last night pointed to Mr Osborne’s 2009 Conservative Party conference speech during which he warned that it would be “grossly unfair” to scrap the 50p rate while public sector pay was frozen. In the autumn statement, the Chancellor said pay rises among public officials would be capped at one per cent after 2013 — in effect, a pay freeze.
Mr Cameron yesterday outlined Coalition plans to curtail executive pay.
In an interview, the Prime Minister said “big rewards” for corporate failure “make people’s blood boil”.
The Government is preparing to introduce rules to force companies to provide details of their executive’s pay. Shareholders will then have the legal right to veto excessive packages.
Mr Cameron said the Government was considering capping executive pay at a certain multiple of a company’s average salary.
The Prime Minister said on the BBC’s The Andrew Marr Show: “What I think is wrong is pay going up and up and up when it is not commensurate with the success companies are having.
“Some people are worth £2 million because they have added masses of jobs, masses of investment, masses of growth.
“But where there was excessive growth of payment, unrelated to success … is crony capitalism and is wrong. It’s also, and this is the key point, payments for failure.
“Big rewards when people fail make, I think, people’s blood boil.”
In another interview, Danny Alexander, the Liberal Democrat Chief Secretary to the Treasury, said there was a “mood for change”.
The Cabinet will today meet at the Olympic Park for its first meeting of the New Year. The Prime Minister is to stress the economic importance of the 2012 Games to Britain.
Þ The Prime Minister yesterday sought to play down the controversy sparked after he compared the behaviour of Ed Balls, the shadow Chancellor, to “someone with Tourette’s”. Mr Cameron said he was “very sorry” if he had caused offence. Campaigners said the joke had shown a “lack of understanding” to those suffering from the neurological condition.