Osborne defiant over 50p tax cut
George Osborne has brushed off criticism of his decision to cut the top rate of tax for the country's highest earners, saying he was not prepared to keep the 50p rate "to make MPs feel good".
Giving evidence to the Commons Treasury Committee, the chancellor said it had been necessary to reduce the rate to 45p in last week's Budget order to make the tax system competitive.
He said his priority was to take action to close tax loopholes which enabled some of the wealthiest people in the country to reduce their income tax rate to zero.
"Should Britain continue with a tax rate which had been identified around the world as a deterrent to investment in Britain, simply to make MPs feel good that somehow they were levying a rate which we know people were not paying?" he demanded.
"What I have instead tried to correct is abuses in the tax system that have existed for years where people were able to claim unlimited tax reliefs to reduce their income tax rate to zero - people on £5m, £10m a year.
Mr Osborne refused to rule out further cuts to the top rate - although, unlike the 50p rate, he said he had not specifically designated the 45p rate a "temporary" tax.
"The 50p rate was assigned a special status by my predecessor and by me of being temporary. I don't assign a special status to the 45p rate. It is now like all other tax rates - something we keep under review," he said.
"There was something particularly damaging about having a 50p rate of tax. I don't think that applies to a 45p rate of tax."
He said he had chosen to cap unlimited tax reliefs which enabled some wealthy people to escape income tax altogether. He highlighted a "stylised" example drawn up by HM Revenue and Customs.
"An individual can have an income of £10m, and under the tax system I inherited claims loss relief for £5m, charitable relief of £4m, and qualifying loan interest of £1m," he said.
"Their average income tax rate for the year is therefore 0%. They therefore of course pay no income tax whatsoever.
"I think it is very difficult to justify 0% tax rates for some of the wealthiest people in this country."