Why Osborne is playing it right on 45p tax

The 45p tax rate for those earning over £150,000 is a political measure not a fiscal one; calculations by the Institute for Fiscal Studies show that it will raise virtually no revenue. Labour desperately wanted to create a dividing line with the Tories over the issue: Labour want to raise taxes on the wealthiest few, the Tories want to cut services for the many. At the time of the PBR, the Tories sensibly avoided this elephant trap.

Now, George Osborne’s remarks that the 45p rate will be “difficult to avoid” have caused a storm. Tim Montgomerie has declared that “George Osborne needs to get a grip” and warned, “Tax rises must be the last resort, not, as it appears, the first resort.” I agree with the second of Tim’s statements but actually think Osborne’s political judgement is right on the 45p rate.

If Osborne committed the Tories to a repeal of the 45p rate, he would be just where Labour want him: they would insist that he explain what would be cut to pay for this.