U.K. to Decide Fate of Top Income-Tax Rate

LONDON—U.K. Treasury chief George Osborne plans in his budget Wednesday to unveil measures aimed at helping small businesses and lower-income families, but the most politically sensitive issue will likely be whether he scraps the 50% income-tax rate for top earners.

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As he battles to keep the U.K.'s deficit-reduction program on track, Mr. Osborne, chancellor of the exchequer, must perform a tricky balancing act: stimulate much-needed growth without increasing the burden on the Treasury purse.

Every British taxpayer is to receive a personal statement detailing exactly how their taxes are being spent as part of the government's drive to make the tax system easier to understand and more transparent. Dow Jones's Ainsley Thomson discusses. Photo: Reuters

He must also find a compromise between the goal of the government's Liberal Democrat junior coalition partner, which wants a tax break for lower-income families, and the wishes of his own Conservative Party for a business-friendly budget and a potential cut to the top income-tax rate.

In an unusually public tussle, the Lib Dems have pushed for an acceleration of the coalition agreement to raise the threshold at which people start paying income tax to £10,000 ($15,893).

Nick Clegg, Lib Dem leader and the deputy prime minister, has suggested this could be funded by raising taxes on high earners such as via a "tycoon tax," which would require wealthy Britons to pay a minimum proportion of their total income as tax.

Meanwhile, the chancellor has been considering whether to lower the current top income-tax rate—50% on earnings above £150,000—which is unpopular among wealthier people.

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The government on Wednesday will publish results of a review Mr. Osborne ordered into whether it was raising significant revenue. U.K. media report that the rate could be lowered to 45% to appeal to entrepreneurs and other wealthy individuals.

Such a move would be a political gamble for Mr. Osborne's Conservative Party, which has worked hard to change the perception that it is the party of the elite, and would likely trigger accusations of pandering to the rich if he didn't introduce a corresponding tax on wealth.

Recent polls show that lowering the rate would be unpopular with the majority of Britons.

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Associated Press

Prime Minister David Cameron, left, at Monday's budget meeting with Danny Alexander, chief secretary to the Treasury.

Mr. Osborne in a television interview on Sunday said the bulk of the budget's measures will be aimed at helping low- and middle-income earners, but declined to comment on the top tax rate.

However, he said in the British Broadcasting Corp. interview that the budget would include measures to clamp down on wealthy people who avoid paying property taxes and build on recent efforts to ensure they don't exploit tax loopholes generally.

Another key area of focus for Mr. Osborne is small business. To that end, the chancellor in Wednesday's budget is expected to introduce measures such as tax breaks for producers of high-end television shows such as "Downton Abbey" and tax-relief guarantees for the oil industry aimed at reassuring smaller independent firms buying North Sea fields from the major oil firms.

The government has announced plans to address the lack of credit available for small businesses and plans to provide more details of the £20 billion credit-easing program on Tuesday.The consensus view of economists is that the U.K.'s borrowing requirement for the financial year, which ends on April 5, will be about £7 billion less than the £127 billion the OBR forecast in November.

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Follow the latest news and analysis as U.K. Treasury chief George Osborne unveils his budget Wednesday.

The chancellor is under pressure from business lobby groups, think tanks and lawmakers—including from within his own party—to introduce measures to boost the country's slower-than-expected growth. But Mr. Osborne, who has made cutting the U.K.'s heavy debt load its top priority, has limited room to maneuver.

Two credit-ratings firms have recently warned that the U.K. may lose its prized triple-A rating if it strays from its deficit-reduction plan.

Meanwhile, the government is currently only just on target to meet the fiscal goals it set itself: eliminating the structural deficit over a five-year rolling period and reducing the ratio of net debt to gross domestic product by 2015-16.

Mr. Osborne has publicly said he intends to stick to the deficit-reduction plan and has ruled out any extra borrowing to fund tax giveaways.

In November, Mr. Osborne said economic growth would be weaker and borrowing considerably higher than he had hoped.

Economists expect him to say on Wednesday that the U.K. has borrowed less in the current fiscal year than expected. However, the lower figures expected this week are pretty much in line with estimates made by the Office for Budget Responsibility, which provides independent forecasts to the government, before November's target change.

While Mr. Osborne is likely to emphasize that he has reduced the U.K.'s borrowing by around £23 billion across the two years, the lower figures expected on Wednesday are actually in line with the OBR's estimates in March 2011.

Write to Cassell Bryan-Low at cassell.bryan-low@wsj.com and Ainsley Thomson at ainsley.thomson@dowjones.com

A version of this article appeared Mar. 20, 2012, on page A10 in some U.S. editions of The Wall Street Journal, with the headline: U.K. Is Set to Decide Fate Of Top Income-Tax RateNumbers CrunchThe Conservative-led coalition seeks a budget compromise with its junior partner.

LONDON—U.K. Treasury chief George Osborne, Conservative Party, income tax ebook download, government, government, Osborne, U.K.

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