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Budget 2014: Will income tax rates be altered?

Chancellor facing pressure to make changes


George Osborne faces growing demands from his own benches for a cut in the number who pay 40% income tax.

Meanwhile, opposition parties have mooted further personal allowance rises and a reintroduction of the 10% starting rate.

Here, we round up the demands being made to the Chancellor ahead of the Budget on March 19. 

Go further: Budget 2014 with Which? – all the latest news and speculation  

Increased allowance vs rate cuts

The Chancellor has made increases in tax-free personal allowance a hallmark of his taxation policy since 2010. 

Having set a target of £10,000 at the start of the Coalition, he seems likely to take this further, with a possible rise to £10,500 in 2015-16. 

Commenting on his tax plans, he said: ‘I’m a low tax Conservative. I want hard-working people on all incomes to keep more of their income tax free.’   

However, former Conservative Chancellor, Lord Lawson, has suggested that the personal allowance has been increased too far and that George Osborne should cut basic rate tax from 20p to 19p instead. 

Shadow Chancellor, Ed Balls, has also suggested cutting basic rate tax, with the reintroduction of a 10% ‘starting rate’.

He claimed this would ‘cut taxes for 24 million working people on middle and low income’. 

Go further: UK taxes compared – see how much the government earns from your taxes 

Higher rate tax threshold rise  

Higher rate (40%) income tax has also been the subject of fierce debate in the run up to the Budget. 

The Conservative MP, David Ruffley, recently suggested that it was time ‘to focus on people who are not rich but the striving middle’. 

His was one of a number of voices calling for an increase in the threshold at which 40% tax becomes payable. 

Although this is due to rise (from £41,451 in 2013-14 to £41,866 in 2014-15), ‘fiscal drag’ means that an increasing number of taxpayers pay higher rate tax on a slice of their income. This is currently rising faster than the 40% tax threshold, which is only going up by 1%. 

The number of UK residents paying 40% tax is expected to rise from 4.4m in 2014 to 6m in 2015-16. 

Additional rate tax

The rate of additional rate tax, paid by those whose income exceeds £150,000, was cut from 50% to 45% by Mr Osborne in 2013. 

The Shadow Chancellor, Ed Balls, has indicated an intention to restore the higher 50% rate, reversing ‘the £3bn tax cut’ he claims the reduction represented. 

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