Osborne refuses to 'behave like a Tory' and save 40p taxpayers

A POISONOUS Tory row over the 40p tax rate is threatening to wreck the most important Budget of Chancellor George Osborne’s career on Wednesday - but he is determined to defy the demands of Conservative grandees for the upper tax threshold to be raised by more than inflation.

It means hundreds of thousands of middle-income earners, many of them potential Tory voters, will be dragged into paying the highest rate of tax on the top slice of their earnings.

Former Tory chancellors Nigel Lawson and Norman Lamont have thrown their considerable weight behind the officers of the party’s 1922 Committee – the shop stewards of Conservative MPs – to call for the threshold for the 40 per cent tax to be raised by more than inflation from its current starting point of £41,450.

Subscribe to The Week

Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.

SUBSCRIBE & SAVE

Sign up for The Week's Free Newsletters

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

Sign up

But the poison was injected into their campaign when someone leaked to the media that in a private chat with the 1922 Committee officers - including chairman Graham Brady, John Whittingdale, Bernard Jenkin, Simon Hart, Heather Wheeler and Nick de Bois - on 5 February, Osborne argued that making the middle classes pay tax at 40 per cent makes them feel "good about themselves".

"It means they feel they are a success and joining the aspirational classes. That means they are more likely to think like Conservatives and vote Conservative," Osborne is alleged to have said.

The Treasury today vehemently denied Osborne ever made these complacent, damaging remarks. A Treasury source insisted: "George did not say people enjoy paying 40p. He was explaining that even though more people are paying a marginal tax rate of 40 per cent, the important thing is that they are paying less tax overall."

The Daily Mail is acting as the cheerleader for the Tory campaign. It claims that 2 million ordinary workers, including policemen and senior nurses, will be dragged into the high rate tax bracket in the next two years unless Osborne raises the 40 per cent tax threshold.

Osborne might raise the 40 per cent tax threshold by one per cent on Wednesday, but that won’t be enough for the Tory campaigners. What really upsets the Tories is that dragging more ordinary voters into the higher tax bracket will hit millions of core Tory voters – the very people they think Osborne should be appealing to with barely 15 months to go before the 2015 general election.

They accuse Osborne of failing to act like a Tory tax-cutting chancellor. Instead, he's giving greater priority to lifting the threshold for the starting point of tax from £10,000 to £10,500 at an annual cost of £1.5 billion – which they consider the actions of a chancellor trying to win over Lib Dem and Labour voters.

Lib Dems Nick Clegg and Vince Cable are delighted to have won Osborne over to their view. Danny Alexander, the Lib Dem Treasury Chief Secretary, rubbed salt into the Tory wound yesterday, writing in the Mail on Sunday: "The facts speak for themselves. The rise in the personal tax allowance in this Parliament will benefit over 25 million taxpayers…

"That’s why, as a party, the Lib Dems believe a continued focus on raising the personal tax allowances in this Parliament and the next is in the best interests of our economy and our society."

The BBC's Andrew Marr yesterday accused Osborne of “sounding like a Liberal Democrat”. A few years ago, such a claim would have produced guffaws, but not now. Osborne made it clear on the Marr Show that he reckons raising the threshold for the starting point of tax for the lower paid is a higher priority than lifting the 40 per cent tax threshold.

And there are two very good reasons for Osborne to defy his natural allies in the Tory party. First, it helps David Cameron go into the general election with a defence against Labour’s charge that he and Osborne are only interested in helping the rich. Second, he needs the money.

Failing to raise the tax thresholds may amount to a massive stealth tax on middle-income Britain. But the Chancellor needs the income to provide good news elsewhere. His penultimate Budget before the general election - the one on which Tory hopes are riding - will be all smoke and mirrors.