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, economics editor Article written by Robert Peston Robert Peston Economics editor

This column...

This column may be a bit quiet for a bit, because I am away from the office.

Read full article

More on This Story


Jump to comments pagination
  • rate this

    Comment number 1.

    Its probably to placate the left wing media, ie. the BBC et al.

  • rate this

    Comment number 2.

    When the Great Day dawns, cash will roll-in to the Treasury

    "Proof that cutting tax pays"

    'We' - being 'in it together' - can live with a little more presure meantime

    So transparent?

  • rate this

    Comment number 3.

    The answer is very simple indeed - the next election:
    By delaying the implementation he is encouraging the top rate payers to defer taking income until tax year 2013-14 when most will be collected in the following January (2015).
    Anyone not aware what happens in May 2015 - just after the budget where the windfall will be dispensed meeting his pledges ?
    Osborne is about poliics not economics.

  • rate this

    Comment number 4.

    Surely the whole point of leaking information is so as to allow the maximum amount of time for the top earners to maximise their gains.

    The majority of us it makes absolutely no difference for.

    The majority of us will be worse off after tomorrow, the select few just have choices to make.

  • rate this

    Comment number 5.

    If in doubt do nothing.

    When has Gideon actually had to do anything?
    Think for himself.
    Consider the repercussions.

    Quick - where is a government adviser?
    A bit of fiction is needed where Osborne, Cameron, Clegg and company are shown to be smart.

    Three smart fellows; they felt smart.

    Just about sums up their schoolboy lifestyle.


Comments 5 of 193


This entry is now closed for comments


BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.