Osborne set to unveil the leakiest budget yet

IN THESE days of leaks, lobby briefings and pre-budget announcements, chancellors have sacrificed much of their capacity to surprise in return for an easier ride on their biggest day of the year.

Even if George Osborne has some secret measures up his sleeve today, he could never match the drama of the infamous 1988 budget when Nigel (now Lord) Lawson slashed the top rate of tax from 60 per cent to 40 per cent. The move was totally unexpected – and such was the uproar that greeted it in Westminster that proceedings in the House had to be suspended for 10 minutes while order was restored.

Top rate tax stayed at 40 per cent for 21 years, until Alistair Darling raised it to 50 per cent in 2009 in the wake of the banking crisis and Britain’s ballooning deficit.

Today, thanks to the torrent of leaks in recent weeks, it’s a near certainty that the chancellor will announce a reduction to 45 per cent for those earning more than £150,000 a year (or, as the rest of us like to call them, the rich).

The only real uncertainty is whether he will have the courage to go on and say he intends to reduce it further, taking it back to Lawson’s 40 per cent by the next general election.

Politically, the rationale behind the widespread leaking of the move is easy to see: it will not be popular with “the squeezed middle” or indeed anyone whose earnings fall well short of the £150,000 level and “getting it out there” ahead of the budget is intended to blunt the impact of the move.

Business lobby groups have repeatedly claimed that the 50p tax rate is “bad for business and bad for Britain” and the government has been pushing the line in recent days that it doesn’t actually bring in that much money.

One of the reasons for that is, of course, because the rich and their accountants are extremely adept at tax avoidance. Indeed, we can be sure a small army of accountants is already working on ways – all perfectly legal – for the wealthy to defer any inflow of funds this year until 2013, when the lower rates are expected to come into effect. This will reduce the top rate tax take reduced still further and it’s exactly what happened when the 50 per cent rate was first announced in 2009. Many high-earners brought forward income payments to take advantage of the delay between the announcement and its implementation, with some estimates putting the loss to the treasury as a result at £2 billion.

Making the lower rate effective from midnight tonight would be one way of avoiding a repetition of that but it would be massively unpopular in the City of London and with the business lobby. It is possible, though, that Osborne will stop short of announcing the government’s intention to take the rate down to 40 per cent for fear of extending the period for avoidance.

The government will release figures today showing just how much the top rate tax has raised, and it’s expected to be far lower than initial estimates.

This year’s budget has been perhaps the leakiest ever – and it’s not simply because the government wants to dull the edge of unpopular measures. There’s been fierce horse-trading between the two sides of the coalition and endless talks between advisors, making it harder to keep things under wraps.

The LibDem payback for supporting tax cuts for the rich will be a general clampdown on tax avoidance – the so-called “tycoon tax” – which the government will undoubtedly claim will raise far more from the rich than the 50 per cent rate ever did.

There’ll be a move to take more low earners out of the tax system, with the tax-free personal allowance raised closer to the LibDem target of £10,000 a year. We’ll hear of plans to relax Sunday trading laws for the period of the Olympics and there’ll be some gimmicks too, such as the annual personal tax statement that is to be sent to every one of Britain’s 20 million taxpayers in 2014.

It will show taxpayers exactly where their money goes once the government gets it, with a detailed breakdown of spending.

An example provided by the treasury ahead of the budget shows that, for someone earning £50,000 a year, the biggest share – a third – of the £14,000 or so the government collects in tax and National Insurance goes on welfare and pension payments. Health is the next largest category at 17 per cent, followed by education at 13 per cent and national debt repayments at 6 per cent, or just over £900 a year.

Fiona Walsh writes for the Guardian newspaper in London