Chris Huhne has urged the chancellor to keep the 50p tax rate, despite pressure from the City and his own party to scrap it

Chris Huhne has reopened the coalition row over the 50p tax rate, arguing there is no economic justification for scrapping it and warning the Conservatives against “helping their friends in the City.”

In a provocative interview days before the Liberal Democrat conference, Huhne used George Osborne’s own mantra that “we are all in this together” to urge the chancellor to keep the 50p rate, despite pressure from the City and his own party to scrap it.

The Energy and Climate Change Secretary risked infuriating his Tory cabinet colleagues, saying: “If the cut in the top rate of tax is just a way of helping the Conservatives’ friends in the City to put their feet up, then forget it.” And he warned that the measure would not be allowed to pass through parliament, adding: “They are simply not going to get the votes in the House of Commons.”

The cabinet minister said the government should instead be focusing on lifting the lowest paid out of tax, arguing that it is “nuts” for those in the minimum wage to be taxed at all. “The top priority for tax cuts, if there is spare money, has to be lifting the hard-working low paid out of income tax altogether,” he said. “In the long run, it is nuts to tax someone on the minimum wage, and we should aim to lift thresholds above it.”

Huhne made an economic case against scrapping the rate. “I have no ideological attachment to a particular tax rate,” he said. “But if we are to cut the top rate of tax from 50 pence there has to be a cast-iron economic justification. During tough times, we have to be all in this together.”

He argued that lowering the top rate takes away incentives among the wealthy to work more. “The chancellor has to take account of the two contrary effects on work effort from a tax cut. First, a cut in marginal tax rates has an incentive effect—because people are able to keep more of what they earn when they work harder or longer. But it also has a disincentive effect—because they get extra income without any extra work and can therefore earn what they want with less work.”

He continued: “I would be astonished if the treasury review was able to produce a definitive figure for the top tax rate where we start losing revenue, given the number of studies over the years that have come to different results.”

In a reference to the Liberal Democrats’ desire for a mansion tax, Huhne declared that “there is only one way of ensuring that a cut in the top rate of tax boosts work effort, and that’s by offsetting the windfall gain in income by cutting high earners tax reliefs or some other means such as mansion tax.”

Huhne proposed that “a package that cut the top tax rate but offset any income gains to higher earners by curbing pension relief or applying a high-end property tax would boost incentives more than any other change.”