Budget 2012: Crunch Quad Meeting on Top Tax Rate Plans

Three senior coalition ministers and the prime minister are meeting to thrash out last-minute deals ahead of the 21 March budget, with a controversial move to scrap the top rate of tax still at the top of the agenda.

The "Quad" is made up of David Cameron, chancellor George Osborne, chief secretary to the Treasury Danny Alexander, and deputy prime minister Nick Clegg.

Osborne is under pressure from businesses and his party's ownbackbenches to scrap the top rate of 50p - an idea that has moved centrestage in the runup to the budget.

According to the Daily Telegraph, Osborne will use this budget to announce plans to drop the top rate to 45p in April 2013, with a view of eventually pulling it down further to 40p.

The Lib Dems have been cold towards scrapping the top rate for the wealthiest but in a recent sign that the party was willing to negotiate, party leader Clegg said that the Lib Dems were not "intellectually wedded" to top earners paying 50p in the pound to the taxman.

Osborne's Treasury team's rationale is that fewer people will try to avoid the tax if it is lower - therefore raising more in tax revenues.

This reduction will be agreed by Lib Dems if another tax on the highest earners is introduced.

A "tycoon tax" is reportedly set to be in the budget. It would see the closure of various loopholes used by the very wealthy to avoid paying taxes, which allow many of them to pay proportionally less tax than low earners.

The coalition's junior partners have also mooted the idea of a "mansion tax" on properties worth over £2m, though this idea has been thrown out by the chancellor.

Labour's opposition chancellor, Ed Balls, has been attacking the coalition over its plans to drop the top tax rate.

"The idea that, when fuel bills are going up, tax credits are being cut and families are under real pressure, his [the chancellor's] first priority is to cut taxes only for those over £150,000? That is the wrong priority. It would be completely out of touch," he said.

"I hope even at this late stage he will change course and help families in our country. That's what we need."

One of the Lib Dem priorities is raising the threshold at which people start paying income tax to £10,000 to relieve some of the financial pressures on lower earners.

Clegg had called on the Treasury to go "further and faster" in its plans to lift the threshold, which stands at £8,105.

However, the credit rating agency Moody's poured cold water on Lib Dem hopes when it put Britain on negative watch, casting doubt over the country's ability to maintain its AAA rating.

Osborne is refusing to borrow more cash to do this, meaning the money would have to come from another tax on high earners or by cutting government spending elsewhere.