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George Osborne has been urged to cut the top rate of income tax to 40p in the budget next month - a move that will benefit the rich while the poor face savage welfare cuts.

If the move was to go ahead, it would mean the Tory government was cutting taxes for the most wealthy in the country whilst implementing £12bn of cuts on welfare, hurting the most vulnerable.

It was an ambition that the Tories had in the coalition government, but the measure was blocked by the Lib Dems.

Osborne was nudged towards reducing the income tax rate from the current 45p on earnings over £150,000 to 40p, by Lord Lawson, the former Tory Chancellor.

The Chancellor has indicated in Treasury meetings that he might go ahead and cut the tax rate on high earnings.

(Image: PA)

Lord Lawson told the Financial Times: "I would strongly support this. it would significantly enhance the attractiveness of the UK as a place to do business, at no cost in terms of lost revenue."

"That was the experience when I brought the top rate down to 40% in 1988 and it's even more relevant today"

Labour increased the top rate of tax from 40p to 50p in 2009 after the financial crisis, and then it got reduced to 45p in 2012.

At the time, it was estimated that this would bring in and extra £2.7billion a year in tax revenues.

The cut would be welcomed among the City of London, where banks have complained that his tax and regulatory regime has become burdensome.

The Tories have promised that they will cut pension tax relief for the highest earners, and also Osborne is expected to announce a £5bn crackdown on tax avoidance.

He is expected to announce at the Budget that the income tax threshold will be raised and progress will be made towards a £50,000 starting rate for the current 40p tax.

Currently, 1% of the population qualify to pay the top rate of income tax. 14.7% of people earn enough to pay the higher rate, which kicks in at £32,010. 81.6% pay the basic rate, 2% pay the savers rate and 0.7% pay the lowest rate of income tax.