By Alex Stevenson Follow @alex__stevenson
Liberal Democrats are signalling their readiness to cut a Budget deal which will see the 50p rate of income tax replaced with a mansion tax.
Business secretary Vince Cable said there was a "broad understanding" within Cabinet that Liberal Democrats would allow Tories to scrap the top rate of income tax, levied on those earning over £150,000.
"If the 50p rate were to go – and I and my colleagues are not ideologically wedded to the 50p tax rate – if that were to go, it should be replaced by taxation of wealth, because the wealthy people of the country have got to pay their share, particularly at a time of economic difficulty," Mr Cable told the Today programme.
He made clear the rate will be replaced with the Lib Dems' favoured 'mansion tax', which sees the government take a substantial cut of the sale of properties worth over a threshold of perhaps £1 million or £2 million.
"How exactly that is configured is a detailed matter for negotiation, but that principle must be upheld, and the mansion tax is actually a very economically sensible way of doing it. But there are different ways of approaching it," Mr Cable added.
The precise level of the mansion tax threshold will be a subject of intense debate within the coalition. Opponents suggest it is unfairly focused on the south-east of England, where property values are at their highest.
“There are a vast numbers of extraordinarily valuable properties around the country netting very large gains for their owners, many of whom come from abroad incidentally, and it is are not taxed at all," Mr Cable said.
"You get people with multi-million pound properties paying exactly the same in council tax as somebody living in a three-bed semi. That system doesn't work at all."
Lib Dems have also proposed scrapping tax relief on pensions for those earning over around £48,000 and changing council tax banding to pay the wealthy more.
The party's backbench Treasury spokesperson explained to politics.co.uk in our Budget 2012 preview podcast: "I think the tradeoff would be more taxes on the wealthiest in society in order to fund this tax cut for the broad mass of taxpayers."
George Osborne will deliver the Budget, currently the subject of intense backroom discussions within the coalition, on March 21st.