Amid tension between coalition partners, Lib Dems to claim credit for 'Robin Hood' budget
Nick Clegg will attempt to show this week that the Liberal Democrats are shaping the central direction of the coalition's economic policy as George Osborne announces the scrapping of the 50p top rate of tax in the budget.
Amid concerns among some Lib Dems that the deputy prime minister has bowed to Tory demands, Clegg will point to an expected announcement from the chancellor that he will raise the tax allowance threshold to £10,000 at a faster pace.
A £10,000 allowance, which was one of the main Lib Dem pledges in its general election manifesto, is designed to ensure that lower paid workers are exempt from paying tax. The Lib Dems will claim they have successfully negotiated a "Robin Hood budget" that will pay for helping low paid workers by: • Cracking down on millionaires who avoid stamp duty on properties worth more than £1m by "enveloping" the properties into private companies based abroad. The Treasury will ensure that any property that is lived in, either by the owner or by a tenant, is subject to stamp duty. This will raise just over £100m. • Implementing in full a report by Graham Aaronson, taxation barristers, which called for new rules to target aggressive tax avoidance. This move has been led by Danny Alexander, the Lib Dem chief secretary to the Treasury.
The chancellor, who will meet his most senior Lib Dem ministerial colleagues with the prime minister on Monday, confirmed that the main point of the budgets were agreed last Monday before David Cameron flew to Washington.
But there were signs of tensions between the coalition partners as one senior Lib Dem figure expressed anger at a briefing by the Treasury on Friday that regional pay rates will be introduced in the public sector. This will mean that public sector workers in poorer paid parts of the country will receive lower salaries.
The Lib Dem source said: "There is Lib Dem anger about how this was briefed. The reality does not meet the rhetoric. It is up to individual secretaries of state how and whether to implement regional pay. There are no plans to implement it for the civil service as a whole or to introduce it across the public sector."
The Lib Dem irritation over regional pay rates highlighted tensions over Wednesday's budget. The chancellor will take one of the biggest gambles of this parliament when he announces that the 50p tax is to be scrapped, possibly from next year. It is expected that a report by Revenue & Customs will show that the higher rate of tax, introduced by Alistair Darling in his penultimate budget in 2009 on people earning more than £150,000, has raised less money than expected: the amount is believed to be in the hundreds of millions.
Osborne will balance the move on 50p by announcing that he is pressing ahead with plans to deliver the £10,000 tax threshold, due to come into force in April 2015. It is understood that the chancellor may indicate that he can meet the £10,000 target a year early. The threshold was increased by £1,000 to £7,475 in Osborne's first budget in 2010. It is due to be increased to £8,105 this year.
Moving faster will be expensive. The coalition agreement says that the threshold should be increased in line with inflation. This would mean that it would rise by about £200 next year, a long way short of the £630 needed to meet the 2015 target. It costs £500m to increase the target for every £100 over inflation. This means it would cost Osborne around £2bn just to remain on course for the 2015 target.
But the chancellor made clear on Sunday that he will be working hard this week to make clear that easing the burden on middle and lower income earners is not just a Lib Dem policy. The chancellor told the Andrew Marr Show on BBC1: "My priority is to help low and middle earners. That is where the bulk of the effort in the budget is going to be. We want to see real and substantial progress on lifting low income people out of tax. We've already taken a million low income people out of tax, and helping working families – the people who get up in the morning, go out to work, try and provide for their family, the people who are looking for jobs if they've lost jobs."
Clegg will say that measures to tackle tax avoidance by millionaires, which he is dubbing a "tycoon tax", amount to a highly effective tax on wealth. But Lord Oakeshott, the Lib Dem peer who advises Vince Cable, said: "Cracking down on tax avoidance is not a wealth tax. George Osborne has said he would deal with this in previous budgets, but so far he has only touched it with a feather duster."