A 40p top rate of tax is on its way on 16 March

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According to the Daily Mail this morning:

George Osborne should slash tax for top earners further still, say senior Tories after figures showed a cut from 50p to 45p raised an additional £8 billion.

The Chancellor said income tax data for 2013/14 “completely” defied predictions made by Labour that cutting the rate would cost £3 billion and give top earners an average £10,000 tax cut.

This argument makes no sense at all. It is true that latest estimates (not data) suggest that those with the highest incomes will have paid more than £8 billion more in 2013/14 when compared to 2012/13 but let’s be clear why. They were told that if they delayed their income from March 2013 until sometime in April 2013 the tax rate would fall by 5%, and so they did just that. And as a result income was understated in 2012/13 and overstated in 20913/14. Official estimates show there is no expectation that this pattern should recur and of course there is not. This is a not a phenomena of the tax rate; it is a phenomena of the change in rate.

If in doubt, note that when the rate was introduced £16 to £18 billion of income was shifted, producing the almost exact opposite effect. And the rate was never in existence for long enough for its impact to be properly appraised.

But the  the question has to be asked as to why Osborne has drawn attention to this now, and why the Mail has picked up on it. Remember there is a budget coming, and as The Times wrote recently (in its Red Box email)

One of the untold stories of 2016 has been the very gradual, almost unnoticed decline of George Osborne.

It is in this personal concept and within the political constraints that Brexit poses that George Osborne has to decide what to do with taxation in his 2016 budget. Almost as an aside, the demands of the OECD and IMF that he now stimulate the economy rather than pursue a policy of austerity adds a little piquancy to the whole issue.

It does not help that Osborne goes into the budget facing the expectation that he will propose major changes in the relief on personal pension contributions, if not on those on company funds (as yet). These changes, that would broadly speaking reduce or eliminate tax reliefs when pension contributions are made, but with the resulting future income stream being entirely tax free in similar fashion to an ISA happen to be deeply popular in Tory homelands where local parties are dominated by the relatively prosperous self employed who have long enjoyed the tax relief opportunities that pensions provide as a means of mitigating what they see as the overly burdensome contribution to a state for which they have little regard.

So will that reform be what he draws out if the bag this time round as the big budget reform?  I doubt it, very much. This decision, like those on Short money and a third runway for London will be deferred: without a certain majority and with Osborne’s political capital at very low ebb the case for deferral is overwhelming.

What then will Osborne do to re-grab the political initiative and re-inflate brand Osborne? My suggestion is something very simple: look out for tax cuts. Osborne has form in doing the three things. The first is the unexpected. The second is what the opposition wants. The third is sometimes (not always) the politically astute move. A tax cut cut meets all these criteria since he could even argue that this is the stimulus the economy needs.

Now, admittedly, the Opposition would not be calling for a cut in the higher rates of tax. But that’s precisely the point: Osborne has a habit of doing things that let him say he is doing what they want – delivering a stimulus in this case – whilst doing something that suits his purpose. And in this case his purpose would be to cynically keep the Tory heartland happy and so boost the Remain vote, to boost his own status by confirming him as a tax cutting Chancellor for the well off, and to bait the opposition.

Nothing Osborne does is unplanned. If he’s talking about tax cuts working two weeks before a budget there is a reason. A 40p tax rate is on its way.