Budget 2012: Osborne set to emulate Lawson?

 

George Osborne setting out his Budget thinking on the Andrew Marr Show

Number 11 Downing Street was filled with the sound of singing just a couple of weeks ago. It was the former Chancellor Nigel Lawson who told those gathered to celebrate his 80th birthday that he'd broken into song as he wanted to celebrate by doing something he'd never done before.

Amongst those watching with Lawson's family and friends was the current Chancellor George Osborne. He was thinking about the Budget he will deliver later this week in which he has decided to do something Lawson HAD done before - to reform Britain's tax system.

In his 1988 budget Lawson slashed the top rate of income tax from 60p to 40p - a move that caused such outrage amongst MPs that the House of Commons sitting had to be suspended. Despite that, New Labour was founded in part on a promise not to reverse the change. It was only 20 years later in the aftermath of the banking crisis that the top rate was increased to 50p.

Now George Osborne wants to cut that top rate again, but he faces problems Lawson never faced. He has no money to spend. He's in a coalition and he's always insisted that the government may be imposing austerity but it still believes in fairness.

So the chancellor has been searching for a way to cut the top rate of tax in a way that he can say is affordable, can be presented as fair and will keep the coalition together. As the Liberal Democrats have debated the price they will demand for allowing the Tories to get their way, the options have leaked out - higher taxes on mansions, on tycoons, on pensions.

I expect George Osborne to cut the top rate not in one step but over time and to link it to raising money from the well-off in other ways. In the short term that will involve closing tax avoidance loopholes and, perhaps, capping the amount which can be claimed in tax-free allowances.

In the long term by examining how and whether a tax on more expensive properties could work - something the Treasury likes but Number 10 is very nervous of.

Ministers will want to be able to claim - just as Nigel Lawson did all those years ago - that whilst they are cutting the rate of tax they will, nevertheless, increase the total amount of tax actually paid.

Osborne knows that cutting the top rate of tax may cause just as much of a fuss now as it did in 1988 but he will hope that it becomes just as hard to reverse. He will present it as a long-term reform - along with changes to the planning system, regional pay and the possible privatisation of the trunk road network.

This week's Budget won't be as dramatic as Nigel Lawson's in 1988 but the Chancellor will hope that it will give him something to be proud of at his 80th birthday - only 39 and a bit years to wait.

 
Nick Robinson Article written by Nick Robinson Nick Robinson Political editor

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