Conservative Diary

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Cutting the 50p rate was the right thing to do. But the Conservatives paid a high price for it.

By Paul Goodman
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Screen shot 2013-04-06 at 12.42.35After last year's budget, which contained the cut in the 50p top income tax rate implemented today, Conservative poll ratings dived.  It is impossible to prove cause and effect, and George Osborne advanced other unpopular measures too: the freeze in pensioners personal allowances, and VAT measures - such as the pasty tax - that were eventually reversed.  But there can be little doubt that the party paid a heavy price for the cut to 45p, and it may well be that no single measure has been so damaging to it.  Rightly or wrongly, it helped to boost Labour's attack on David Cameron and Osborne as "posh boys", in the phrase associated with Nadine Dorries, who want to help their rich friends only.

The debate within the party about how best to cut income tax for poorer votes - Robert Halfon wants the 10p tax rate restored; Andrew Lilico wants the threshold raised further instead - gathered pace and momentum after the poll slump.  Tim Montgomerie counted support for the move as one of his three big mistakes.  I also supported it, and failed to learn from the timing of the master of cutting the top rate of tax, Nigel Lawson.  The Conservatives had been in office for almost ten years when he introduced the 40p rate, and were in a strong political position.  Cameron and Osborne had been in office for only two, and were in a much weaker one: indeed, they were governing in coalition.

Lawson also pointed out recently that he moved to cut the rate in his first post-election budget after Margaret Thatcher's 1987 landslide.  The moral is: bring in your radical and controversial measures in as soon as you can.  None the less, I still believe that Osborne was right to make the move, even in the restricted form that the conditions of coalition necessitated.  As Peter Young has pointed out on this site, HMRC's report into the the 50p rate highlighted data showing that the top rate was  “over ten per cent higher than the average of other top central Government rates in the G7 and EU-27 and over fifteen per cent higher than the average in the rest of the G20”.

Young added: "The conclusion one draws from the data is that our top rate needs to be no more than 35% - not 45/47%."  The Chancellor was right to make the cut - one out of character with his previous form and natural instincts, which are to avoid being caught on the side of dividing lines that Labour set and want its opponents to take.


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