When Nigel Lawson cut the top rate of income tax

We have been here twice before. Once in 2012, when George Osborne announced a cut in the top rate of income tax from 50 per cent to 45 per cent; and once in 1988, when Nigel Lawson cut the top rate from 60 per cent to 40 per cent.

In neither case was the cut popular, and in neither case was there any evidence of any long-term benefit to the economy. Osborne’s cut seemed hard to justify at a time of economic stringency in which the chancellor’s message, as he sought to cut government borrowing, was that we are “all in this together”. But it was overshadowed by the term “omnishambles Budget” because of the row over VAT on hot pasties, on which Osborne U-turned a few days later.

Lawson’s cut was more controversial, coming after years in which the gap between rich and poor had grown wider, partly as the result of the Thatcher government’s policies. It prompted a spontaneous protest in the House of Commons. Lawson had got to that part of his Budget speech in which he said: “I propose to abolish all the higher rates of tax above 40 per cent. This major reform will leave us with one of the simplest systems of income tax in the world, consisting –” According to Hansard, Dave Nellist, the Labour MP who was a leading light of the Militant tendency, tried to intervene and refused to sit down when the deputy speaker told him to. Other Labour MPs, members of the Socialist Campaign Group, were also standing and refusing to sit down.

At which point Hansard recorded: “Grave disorder having arisen in the House, Mr Deputy Speaker, pursuant to Standing Order No 45 (Power of Mr Speaker to adjourn House or suspend sitting), suspended the sitting for 10 minutes.” No visual record of this event exists because the 1988 Budget was the last to be delivered before the proceedings of the Commons were televised.

Lawson himself was most put out, complaining in his memoir about “some of the most amazing scenes ever to have taken place on Budget day”, which he called “a particularly loutish display of the politics of envy”.

He also makes the point in his memoir that his tax cuts – he cut the basic rate of income tax from 27 per cent to 25 per cent at the same time – were paid for by prudent management of the public finances. In the next financial year, government revenue exceeded spending by 3 per cent of national income, and he repaid some of the national debt. This is rather different from today’s situation when tax cuts will be paid for by increasing government borrowing.

One thing hasn’t changed, however. A cut to the top rate of tax remains out of line with public opinion. Professor Ben Ansell at Nuffield College, Oxford, this weekend reported that the tax rates most favoured by the British public for those earning more than £150,000 a year are 60 per cent or 50 per cent, with an even higher rate of 70 per cent the next most popular. Of these options, Kwasi Kwarteng’s new top rate of 40 per cent comes bottom of people’s preferences.

Yours,

John Rentoul

Chief political commentator