BRITAIN IS to axe its “temporary” 50 per cent top rate of income tax, as George Osborne, the chancellor of the exchequer, uses his budget to rebalance the way the wealthy are taxed.

Mr Osborne will cut the headline rate of income tax for high earners to 45 per cent in 2013 and hopes to further reduce it to 40 per cent – Britain’s top rate before the financial crash ripped a hole in the public finances – before the planned 2015 election.

The move is expected to be the most controversial aspect of today’s budget and will lead to allegations that the Conservative-Liberal Democrat coalition government has the wrong priorities.

“What planet is George Osborne on?” asked Ed Balls, finance spokesman for the Labour opposition.

Mr Osborne hopes the move will help attract investors to Britain and believes the sum raised by the top rate is relatively small in any case. Instead, he will try to raise more taxes from the wealthy overall by closing loopholes and avoidance schemes.

Taxation of the wealthy has dominated debate ahead of the budget, whose significance is likely to be political rather than economic. For the first time in four years, a British finance minister will make his annual financial statement without any sense of an impending crisis.

Mr Osborne’s financial package is expected to be fiscally neutral and will stick to the path of retrenchment set out after the 2010 election. With hopes rising that Britain will avoid a double-dip recession, both coalition parties are wedded to a programme of cuts and tax rises.

However, tax reform has been a subject of heated debate, as Mr Osborne looks to transfer money from the wealthy, including British and foreign millionaires living in exclusive districts of London, to working families, struggling to balance household budgets.

The centrist Liberal Democrats have agreed that Mr Osborne can cut the headline income tax rate, but only if he can extract double the amount of lost revenue by closing loopholes, including on the stamp duty paid on expensive homes. – (Copyright The Financial Times Limited 2012)