Cameron Holds Conference Call as Budget Talks Go to the Wire

U.K. Prime Minister David Cameron led a conference call of senior Cabinet members today as he sought to overcome differences in his Conservative-led government over the March 21 budget.

Hours after their return from the U.S., Cameron and Chancellor of the Exchequer George Osborne were locked in negotiations with Deputy Prime Minister Nick Clegg and Treasury Chief Secretary Danny Alexander of the Liberal Democrats, the junior coalition partners. Cameron conducted the call from his electoral district in Oxfordshire, central England, according to his office.

At stake are decisions on whether the government should scrap the top rate of income tax -- favored by the Conservatives to help spur the economy -- while reshaping the system to help low-income families, a goal demanded by the Liberal Democrats. Decisions will be constrained by Osborne’s pledge not to threaten Britain’s top credit rating with unfunded “giveaways.”

Cameron’s spokeswoman, Vickie Sheriff, told reporters in London today that she wouldn’t “make any specific comment on what is or isn’t in the scorecard” for the budget and described press reports that Osborne plans to scrap the 50 percent rate of income tax as “speculation.”

Critics of the 50 percent income-tax rate, paid on personal income above 150,000 pounds (£238,000) a year, include London Mayor Boris Johnson. They argue it is a disincentive to entrepreneurs, encourages tax evasion and risks diverting investment abroad. The levy was introduced by the previous Labour government to help cut the budget deficit and left Britain with a higher marginal tax rate than in the U.S., Germany and France.

‘Out of Touch’

The Guardian newspaper today reported that Osborne will announce plans to reduce the rate to 40 percent in the budget. The Financial Times said it would be cut to 45 percent while the Daily Telegraph said it won’t be cut, suggesting agreement hasn’t been reached.

“The idea that, when fuel bills are going up, tax credits are being cut and families are under real pressure, his first priority is to cut taxes only for those over 150,000 pounds? That is the wrong priority,” Ed Balls, Treasury spokesman for the opposition Labour Party, told ITV News today. “It would be completely out of touch. I hope even at this late stage he will change course and help families in our country. That’s what we need.”

OBR Deadline

Today is the deadline for budget measures to be presented to the Office for Budget Responsibility -- a non-partisan body that oversees forecasting for the Treasury and monitors the public finances -- so that it can prepare its economic and fiscal projections. A final meeting of the four ministers, known as the “quad,” will take place on March 19, although decisions taken then will not be included in the OBR calculations.

The Liberal Democrats say their priority is to take more low-income households out of the tax net altogether. Business Secretary Vince Cable said on March 6 the party is willing to scrap the top income-tax rate as long as the Conservatives agreed to introduce new taxes on the wealthy.

Cable said he favored a tax on property, known as a “mansion tax,” which could be levied by local government and become part of the existing Council Tax or be raised directly by central government.

The next day, Cable attacked a lack of “compelling vision” in the government, saying efforts to narrow the budget deficit don’t amount to an economic plan for the future. Clegg has called for a “tycoon tax” on high earners, without giving details.

Osborne will use this week’s threat by Fitch Ratings to strip Britain of its top investment grade because of its limited ability to deal with economic shocks as ammunition against opposition calls to slow the pace of deficit reduction.

The chancellor’s budget cuts will see more than 700,000 public-sector jobs axed in the tightest fiscal squeeze since World War II. He aims to erase by 2017 the bulk of a budget deficit that equals 9 percent of gross domestic product.

To contact the reporter on this story: Gonzalo Vina in London at gvina@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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