Top 50p tax rate is temporary measure, says defiant Cameron

Government figures poured cold water on prospects of swift action on the 50p rate, with Communities Secretary Eric Pickles – a leading Cabinet advocate of abolition – acknowledging that it can be dropped only “when the time is right”.

In a letter 20 high profile business experts told the Chancellor the UK needed to return to an “internationally competitive tax regime” to stimulate the stuttering economy.

The letter sparked claims from Labour and the TUC that the Government was contemplating a massive handout to the wealthiest in society at a time when ordinary taxpayers were struggling from the impact of cuts.

Signed by economists including former members of the Bank of England’s Monetary Policy Committee DeAnne Julius and Sushil Wadhwani, the letter warned that the levy on earnings over £150,000, introduced by the previous Labour chancellor Alistair Darling, “punishes” entrepreneurship and could do “lasting damage” to the economy.

The top rate, predicted to raise around £2.7bn, was a “self-defeating” way for the Treasury to raise cash as it would drive investment and high-earning individuals abroad, they said.

Their intervention came as Mr Osborne signalled that growth forecasts were set to be downgraded in his autumn statement on November 29, following a slew of poor data.

In a speech in the City last night, Mr Osborne said he had had to revise down his short-term expectations for growth, but insisted that the Government would stick to its deficit reduction plan.

Mr Osborne has ordered HM Revenue and Customs to carry out a review of how much money the 50p rate is actually raising, though the results of this are not expected until the spring.

Mr Cameron’s official spokesman confirmed that the Government regarded the rate as “temporary” but stated that official policy – as set out in last year’s Coalition Agreement – was that lifting the income tax threshold to £10,000 should take priority over other tax cuts. The spokesman told reporters: “As the Chancellor said at the time of the Budget, the 50p rate is a temporary measure.

“He has asked Revenue and Customs to conduct some analysis on the amount of money being raised by the 50p rate. That analysis is still ongoing.”

Mr Pickles said: “There is a strong case to say this isn’t actually contributing very much and on balance is probably doing more damage than good. When the Chancellor judges the time is right to do so, then we should get rid of it.”

But Labour said that the priority for tax cuts should be reversing the hike in VAT to 20 per cent.

“Millions of struggling families and pensioners on middle and low incomes will wonder why the only tax rise or spending cut George Osborne is willing to reconsider is the top rate of tax for the very richest,” said Shadow Chancellor Ed Balls.

“If we really are all in this together then the right priority to boost the stalled economy now should be temporarily reversing the VAT rise, which is costing families with children around £450 a year.”

Mr Cameron taunted Labour in the Commons over Mr Darling’s confirmation, in memoirs published today, that he advocated a 20 per cent VAT rate ahead of the 2010 election and believed that Gordon Brown’s refusal left the party without a “credible” economic policy.

Mr Cameron, who brought a copy of Mr Darling’s book into the chamber for Prime Minister’s Questions, said it was “interesting” that Labour leader Ed Miliband did not dare ask him about the economy.