50p tax rate causes fresh split

DANNY Alexander blindsided his Tory colleagues yesterday by dismissing calls to abolish the 50p tax-rate as an idea from “cloud cuckoo land”.

Asked if the top-rate tax should be cut, the chief secretary to the treasury said: “Anyone who thinks we’re going to shift our priority to reducing the tax burden for the wealthiest has got another thing coming.”

The strength of his position shocked his coalition partners in the Treasury and appears to be at odds with what chancellor George Osborne has briefed his Tory colleagues behind the scenes.

City A.M. understands that Tory MPs have received private assurances from Osborne that the 50p tax rate is temporary and will be abolished as soon as is politically feasible.

“They’ve made the decision to abolish it but know they can’t right now,” said one MP. The treasury is currently looking into whether the 50p rate will ultimately increase or decrease revenues by discouraging wealth creation and pushing the super-rich offshore.

Osborne is banking on the study to come to the latter conclusion, making it more palatable to bring the tax down. But Alexander’s rhetoric will make it hard for him to support a shift in policy in the next year, setting up the coalition for an acrimonious battle. It adds to a hardening of the Liberal Democrat stance, after business secretary Vince Cable said on Friday that cutting taxes to kick-start the economy amounts to “voodoo economics”.