Coalition rift looms as David Cameron says 50p top tax rate is not here to stay

The Prime Minister said he “did not want high marginal rates of tax”, despite reports that the Tory-led government had accepted the rate could not be axed before the 2015 general election.

Mr Cameron’s stark warning that there were “question marks” over the top tax rate of 50p, introduced by the last Labour government in 2010, is likely to lead to a rift with his Liberal Democrat coalition partners, who are insisting that if it is dropped, it is replaced by an alternative such as the so-called “mansion tax” on high-value properties.

The Prime Minister would not say when the coalition hoped to lower the top rate tax. But he did confirm the issue would be reviewed in the run-up to the Budget later this year.

Mr Cameron acknowledged that the UK government had to “demonstrate fairness”, but said it was also important to consider whether it was an effective way of raising revenue.

He said: “Tax is a matter for the Chancellor in his Budget but, as I’ve said, we’ve got to demonstrate fairness over these coming years.

“We’ve also got to look at the evidence of the 50p tax – we’re doing a big study: is it raising a lot of revenue, and if it isn’t clearly there will be question marks over it.

“It is temporary, but these things will be decided in the Budget in the proper way.”

Mr Cameron’s comments come amid reports that both he and Chancellor George Osborne believe it would be politically impossible to axe the top rate of tax before 2015, as they fear being accused of pandering to the wealthy.

The tax is paid at 50p for each pound earned over £150,000 and affects around 310,000 people in the UK.

It was reported that a paper by Her Majesty’s Revenue and Customs (HMRC) is expected to show the tax, introduced by Gordon Brown, led to a “surge” in revenues.

Mr Cameron’s official spokesman yesterday said that he understood that HMRC has not yet completed its study.

He said: “The Prime Minister has always been very clear that the 50p rate should be temporary but that, in our efforts to reduce the deficit, we need to demonstrate that we are doing that in a fair way, and we need to ask those with the broadest shoulders to contribute the most.

“On what happens to 50p in the future, tax is a matter for the Chancellor and tax decisions are made in Budgets.”

However, senior SNP MSP John Wilson, the deputy convener of Holyrood’s economy committee, criticised the government’s tax stance.

He said: “Those earning salaries that are much higher than others should be paying a fair contribution through taxation. “Many of the individuals affected by the 50p rate earn salaries that are above average earnings. That’s why their tax should be commensurate with the amount they earn.

“Mr Cameron’s comments highlight the fact that at the same time as welfare reform legislation being introduced by the coalition is impacting on the lowest paid and most vulnerable, the most highly paid earners get away without making a fair contribution.”

TUC general secretary Brendan Barber said the government should make the 50p rate permanent, rather than holding out the prospect of tax cuts “to those who can well afford to pay their fair share”.

He said: “Scrapping it would simply be pandering to those at the very top, whose rewards the Prime Minister says he wants to crack down on.”

Meanwhile Mr Cameron also said that the UK government was looking at whether top pay should be “linked to success.”

His comments came after it was reported that Royal Bank of Scotland investment bank chief John Hourican could be in line for a £4 billion special bonus this year. The bank is 83 per cent owned by the taxpayer.

Mr Cameron refused to comment on individual cases, but suggested the RBS deal may have been agreed before his administration came to power.