Two big reasons the Chancellor will find it difficult to remove the 50p tax rate

Chancellor George Osborne helps to start work on the new 5 Broadgate development in the City Of London. Photo: PA

George Osborne has always said he doesn’t like the 50p top tax rate. He’s always said it is temporary. But it looks as if it won’t be as temporary as he had hoped.

There are two main reasons why it’s highly unlikely the rate will be abolished in the Budget – despite the calls for him to do just that from 500 businesses in the Daily Telegraph.

The first is the Lib Dems.

Abolishing the rate is much, much lower down Nick Clegg’s priority list. He wants any spare money to be targetted at the bottom end of the income scale: going “further and faster” – as Lib Dems put it – on their manifesto pledge to raise to £10,000 the threshold at which people start paying tax.

And it seems the Deputy Prime Minister is insisting in his negotiations with the Tories that if the 50p rate is axed – it must be replaced with an alternative wealth tax – most likely on expensive properties. All of which is taking time. All of which means they will not reach a conclusion by the Budget – now less than three weeks away.

The second problem is the symbolism.

Even some Tories will acknowledge that it does not look good for the government to cut the rate of tax for the top 1% of earners at a time of public spending cuts, welfare and pension reforms, and wage freezes. They agree with the conservative theory that lower taxes encourage the wealth and job creators – but Spring 2012 is simply not the time.

The most the Chancellor will be able to do in the Budget it seems is to set the direction of travel, to indicate he wants to cut the top rate of tax – but insist he just can’t do it yet.

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