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.

Update:

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.

Update:

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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  • rate this
    -31

    Comment number 13.

    Hi Lefties

    Lets face it, George Osborne has already been far more successful as Chancellor than Brown and Darling combined. He couldn't be any more disasterous - could he? Be honest. Its only your ideology that makes you so any George.

  • rate this
    +15

    Comment number 12.

    This reminds me of the story of the poor broke homeless man who donated his last gold coin to charity and the very wealthy man that donated 5 gold coins out of his millions. Who paid the most?

  • rate this
    +27

    Comment number 11.

    It's fairly transparent......

    Osbourne encourages more tax avoidance for another year, and tax revenues decrease, and then when it goes back to 40p the deferred bonuses/dividends are declared and taxed as income.

    Eh, Voila! - the tax take rises, and Osbourne can claim he's a genuis and that Labour is not the party for business etc - and if he's "lucky" this might even coincide with an Election!

  • rate this
    +6

    Comment number 10.

    That's a smart observation-that delaying the tax cut could reduce the tax take from those affected until the reduction kicks in. Your well placed source-not Mr Leak, is he? About the only thing of this budget that hasn't leaked out is George Osborne's jokes. I see a Mr Speaker detention for the Chancellor

  • rate this
    -18

    Comment number 9.

    A little bit speculative - we won't know exactly what he is going to do until tomorrow's budget speech. However, the 50% tax rate has probably damaged the Treasury & for people herein to posit the politics of it - the rate was brought in by the poisonous Brown purely for political spite.

    It should go & go NOW. Lefties will be up in arms but the tax take will go up, as has been proven many times.

  • rate this
    +17

    Comment number 8.

    Maybe its to show how little the top rate band raises so that he can justify cutting it straight to 40% ?

    Just another example of "trickle up" - which unlike "trickle down" is a real process.

  • rate this
    +20

    Comment number 7.

    Any delay will be to give them time to think up new ways around paying it.
    As I overheard one businessman remark "I don't pay accountants and the taxman!"

  • rate this
    +14

    Comment number 6.

    If bonuses are deferred until a lower rate appears, this will reduce revunue, and therefore provide evidence to prove the tax isn't working to justify the abolition. A slippery manoeuvre.

  • rate this
    -8

    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.

  • rate this
    +35

    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
    +54

    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
    +9

    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
    -50

    Comment number 1.

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

 

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