Mystery over delay in top-rate tax cut

Chancellor of the Exchequer George Osborne Why is George Osborne planning to delay a cut in top-rate tax?

Putting to one side the argument over whether it is a good idea or a bad idea to cut the top rate of income tax, what everyone I speak to (outside of government) regards as spectacularly weird is the plan to delay the cut.

Some of you will regard this as the equivalent of debating whether Attila the Hun was kind to his mum, rather than his more conspicuous claims to a place in history. But the delay to the tax reduction is puzzling.

In case you harbour a scintilla of doubt about the tax cut, a very well-placed source confirms to me that the chancellor will tomorrow announce a reduction in the top rate of income tax from 50p in the pound to 45p, but with implementation postponed for a year. No news there. Has there ever been such a widely leaked budget plan?

Now here's the thing. I spend an unhealthy amount of time with people whose huge incomes stem in large part from bonuses and dividends paid by businesses they own, control or influence. And they all say to me that if the cut in income tax is delayed for a year, they will delay by the same period a substantial portion of these bonuses and dividends.

So on a bonus or dividend of £5m, the tax saving from delaying payment for a year would be a bit more than £240,000 - which is probably worth waiting for.

If entrepreneurs, hedge fund managers, bankers and so on all decided to shelve what they take from their businesses, that would have the effect of reducing - perhaps substantially - the tax take from the UK's richest over the next year (there is a compelling piece on all this in today's Telegraph).

So why is the chancellor delaying the cut? It can't be for political reasons, many would say, unless he is a masochist: any postponement will only prolong the attacks he will face from the Labour Party and other opponents of the tax reduction (which according to opinion polls represent a majority in Britain).

There may be technical reasons for waiting, to allow companies to change their PAYE systems for example. But a relatively small number of people actually pay the 50p rate, and many of these pay tax via self-assessment, so there should not be a huge bureaucratic chore in preparing for the reduction in the tax rate.

So I wonder therefore if between now and 12.30pm tomorrow, when George Osborne announces his budget, the postponed cut in the top rate might become an immediate cut.

PS As far as I can tell, the delay in the tax reduction has not been demanded by the Lib Dems. What they've been looking for is countervailing closures of tax loopholes to extract money in other ways from the rich - with a preference for taxing wealth as opposed to income.


By the way, I am pretty sure that the cut in the top rate of tax won't be delayed, that the penny dropped at the Treasury that delaying the cut could lead to a diminution of tax revenue in the short term and an increase in political pain. So I expect the tax cut to take effect for the tax year beginning on 6 April for self-assessment.


Oh gawd, I am no longer sure about the start date for a cut in the top rate of tax. Apparently, it's complicated. Do by all means call me a blithering idiot.

Robert Peston Article written by Robert Peston Robert Peston Economics editor

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