Poor middle classes: Osborne to reject calls for tax cuts in Budget
Andrew Grice has been Political Editor of The Independent since 1998. He was previously Political Editor of The Sunday Times, where he worked for 10 years, and he has been a Westminster-based journalist since 1982. His column, Inside Politics, appears in The Independent each Saturday.
Friday 14 March 2014
George Osborne will reject growing demands by Conservative MPs for significant tax cuts for the middle classes in his Budget next Wednesday.
The Chancellor will argue that it would be fairer to target any tax reductions on people on lower incomes. He is expected to announce that the personal tax allowance, which will already rise to £10,000 a year month, will increase to at least £10,500 in April next year.
His decision will disappoint Tory MPs, who are pressing for lower taxes for people who have been sucked into the 40p rate, which starts to bite on incomes of £41,866 a year from next month. Yesterday the backbenchers won the backing of two former Tory Chancellors, Lord (Nigel) Lawson and Lord (Norman) Lamont.
The starting rate has been frozen or reduced in recent years in order to fund the decision to take lower paid people out of the tax net. But this has drawn more taxpayers into the 40p band as their incomes rise. When Lord Lawson introduced it in 1988, about 1.35m people paid it. Today 4.4m are in it and the number is forecast to reach 5m before next year's general election.
David Cameron and Mr Osborne are to launch a drive to persuade Tory MPs that it would be wrong to spend scare resources on reducing taxes for people on middle rather than low incomes. They will warn that raising the 40p threshold would mean that people earning between £42,000 and £50,000 a year would enjoy tax cuts twice as big as those for someone paid £20,000.
Ministers will also repackage the increase in the personal allowance as a measure that helps all taxpayers earning up to £100,000 a year, not just low earners. One senior Tory MP said yesterday: "It does help the middle classes, but we haven't 'sold' it properly. We have presented it as helping those at the bottom of the income scale."
As part of the fightback, the Treasury will issue figures showing how people on the 40p rate have shared the benefits of the rise in the personal allowance because they pay tax on a smaller slice of their income. A typical 40p rate payer will pay £164 less income tax and national insurance (NI) in the 2013-14 financial year than in the previous year. In 2013-14, such a taxpayer's tax and NI bill would be £350.50 lower than in 2010-11, rising to £504 next month.
Treasury statistics also show that someone on £40,000 is £431 a year better off than he or she would have been under the tax and NI plans of the previous Labour Government. A person on £43,000 is £276 a year better off and someone on £44,000 is £176 better off.
Ministers fear that raising the 40p rate threshold could damage the Tories' electoral prospects by provoking Labour claims that Mr Osborne was pandering to his party's supporters rather than helping those most in need. Labour branded the Tories as the "party of the rich" after Mr Osborne cut the 50p top rate on income over £150,000 a year to 45p last year.
- 1 The BBC has just done more to eradicate ‘terrorism’ than all our wars since 9/11
- 2 Dog thinks owner is drowning in lake, dives in and tries to pull him out
- 4 Chilling drone footage captures Auschwitz ahead of 70th anniversary of liberation
Auschwitz liberation 70th anniversary: Woman sent to three Nazi death camps describes surviving gas chamber
Saudi preacher who 'raped and tortured' his five -year-old daughter to death is released after paying 'blood money'
Greece elections: Greek PM Alexis Tsipras takes aim at 'neo-liberal' Europe as country gears up for prolonged austerity battle
Pornhub star Mia Khalifa receives death threats after being ranked the site's top adult actress
Prince Philip set to be knighted by Australia: Celebrate by reading his greatest gaffes
'We would evict Queen from Buckingham Palace and allocate her council house,' say Greens
French court convicts three over homophobic tweets, in case hailed as a 'significant victory' by LGBT rights campaigners
Greece elections: Syriza and EU on collision course after election win for left-wing party
British Muslim school children suffering a backlash of abuse following Paris attacks
Islamic history is full of free thinkers - but recent attempts to suppress critical thought are verging on the absurd
Leaked documents show Ukip leaders approve NHS privatisation once it becomes more 'acceptable to the electorate'
£30000 per annum + benefits: Ashdown Group: We are recruitment for an Assistan...
£45000 - £50000 per annum: Recruitment Genius: This leading provider of design...
£23000 - £28000 per annum: Recruitment Genius: Would you like to be a part of ...
£35000 - £45000 per annum: Recruitment Genius: This growing successful busines...