The evidence is conclusive.  George Osborne’s cut in the top rate of income tax from 50p to 45p has resulted in the rich paying more to the Treasury, not less: knowing that they will keep more of their own money has incentivised them to make more.  Now the Chancellor is reportedly mulling reducing it further.  According to the Financial Times, “he has indicated in Treasury meetings that he might cut the 45p tax rate on earnings above £150,000, fulfilling a goal that the Liberal Democrats blocked him achieving in the coalition”.

Lord Lawson is quoted in the paper backing any such move, and the great cutter-of-the-top-rate himself is the model for a further reduction.  He slashed it from 60p to 40p in his post-election budget of 1988, knowing that the political vantage for doing so would never be stronger that when an election had just been won, the next was several years distant, and the opposition was in disarray.  As his colleague John Biffen had said to Margaret Thatcher during the previous Parliament: “if you don’t do it now, you’ll never be able to do it”.

Biffen was referring to VAT, not income tax, and to raising it, not cutting it: but the point holds.  Osborne will have learned from the Coalition years that there is no gain from waiting a year to reduce the top rate.  So should he do it?  Pondering the matter takes us to the heart of the debate about Conservative modernisation.  All parties must “change to win”, as David Cameron once put it.  And there is no controversy (or not so much) about making authentic change.  But what about change which is not authentic – which prizes image above content?

The Chancellor’s Budget will scale back tax credits for poorer people.  For him also to cut tax rates for richer ones would scarcely boost David Cameron’s claim to lead a One Nation party – even if tax revenues afterwards rose further, bringing in more cash for the public services about which the Left generates so much heat (though rather less light).  Blame BBC bias or Karl Marx or Charlotte Church or whoever else you please, but the fact remains: many voters are of the Robin Hood School of Economics, which holds that the poor can only gain if more money is confiscated from the rich.

Osborne might be able to able deflect a row over cutting the 45p rate were he also to curb tax relief for richer pensioners – as the ConservativeHome Manifesto suggested – or usher in a new top rate of council tax, which Mark Field has made the case for on this site.  But it would be a risky enterprise.  The Tory poll rating plunged after the Chancellor reduced the top rate in 2012.  It might again.  And it might not rise back to where it was last month, or go higher, when voters go to the polls in 2020.  Never mind image, some will say: what about simple political prudence?

It is a good thing for richer people to pay more tax – which isn’t also to say that it’s a good thing for them to pay a greater share it.  As Peter Franklin has pointed out, the other side of them paying more is that others are paying less: in other words, a hollowing-out of the tax base.  The starting-point of our manifesto was that the homes, jobs and savings on which the mass middle class could rely post-war are under threat.  Tax cuts for the rich that benefit others are one thing.  Tax breaks that privilege the rich unjustly are another.  If Osborne cuts the first in his budget, he must also curb the other.

103 comments for: If Osborne cuts tax rates for the rich, he must also curb their tax privileges

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