Budget 2012: 50p or not 50p?

Back when these budget negotiations started, George Osborne’s opening bid was to do away with the 50p rate altogether. There would be no supertax rate at all, just the 40p rate for everyone above £43,000.

The chancellor believes what he sees as punitive levels of taxation are wrong. He believes in the Laffer curve. He is the man who, in opposition, ordered a review looking at flat taxes. He knows that Tories – particularly MPs – need to feel that their leadership still believes in basic Conservative nostrums.

In the Coalition talks, the Lib Dems could smell his keenness and pushed for a trade-off option that would fall short of full-scale abolition. So between them they settled on a 45p rate AND said this was the wrong year to bring it in. Next year, when the OBR numbers should point to better times, would be better.

George Osborne will talk to Conservative backbenchers when he sees them after the budget. Expect him to spell out his ambition to drop the tax completely asap. But the Lib Dems refused to gift him that pledge just as he and the PM refused to gift them the mansion tax. Next year’s budget negotiatons will be pretty groundhog day-like as they go round the houses again on the allowance and top rate tax.

Read more: Budget 2012 – what will Osborne deliver?

So we have a half-measure and a half-promise of future direction. Some Tory fans of the chancellor’s fundamental approach think he’s boobed. Better not to touch the 50p rate at all, they say, than to drag out the agony over 2 or 3 budgets and budget negotiations.

It was always Labour’s hope that the Tories would get labelled rich men’s friends for dropping the tax and they will bust a gut to try to make sure that’s what follows.

And there is a problem at the heart of the arguments against the top rate. You can’t argue with equal strength that the top rate drives entrepreneurs out of the country and into the undergrowth AND say it’s an ineffectual tax that is easily avoided. It is one or the other isn’t it? For the record, the Treasury estimate for what it would bring in WITHOUT any avoidance was £6.5m.

They then calculated that all but £2.7m of that would slip their hands. Today expect to hear that all but a few hundred million stayed out of their grasp.

Remember that when you hear all sorts of promises today about how much the government will pull in on anti-avoidance measures.