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Budget 2014 preview: Middle classes to benefit most from raise in personal allowance Budget 2014 preview: Middle classes to benefit most from raise in personal allowance
(about 20 hours later)
George Osborne insists that the middle classes have reaped the benefit from his decision to raise the personal allowance from £6,475 in 2010-11 to £10,000 from the financial year starting next month, at a cost of more than £10 billion.George Osborne insists that the middle classes have reaped the benefit from his decision to raise the personal allowance from £6,475 in 2010-11 to £10,000 from the financial year starting next month, at a cost of more than £10 billion.
But this tax cut has usually been presented as a way of helping people on low incomes, lifting 2.2 million of them out of the tax net. This suited both the Liberal Democrats, who put a £10,000 allowance on the front page of their 2010 election manifesto, and Conservative ministers, keen to answer Labour claims that they were “balancing the books on the backs of the poor".But this tax cut has usually been presented as a way of helping people on low incomes, lifting 2.2 million of them out of the tax net. This suited both the Liberal Democrats, who put a £10,000 allowance on the front page of their 2010 election manifesto, and Conservative ministers, keen to answer Labour claims that they were “balancing the books on the backs of the poor".
The tax reduction was funded partly by reducing the level of income at which the 40p tax band starts to bite from £43,875 to £41,866. This dragged more people into the higher rate, the number rising from just over thee million in 2010-11 to 4.4 million. Conservative MPs have grown increasingly anxious about this tax rise for the party’s natural middle class supporters. They want Mr Osborne to raise the 40p rate threshold in the Budget by more than the planned one per cent, but are likely to be disappointed.The tax reduction was funded partly by reducing the level of income at which the 40p tax band starts to bite from £43,875 to £41,866. This dragged more people into the higher rate, the number rising from just over thee million in 2010-11 to 4.4 million. Conservative MPs have grown increasingly anxious about this tax rise for the party’s natural middle class supporters. They want Mr Osborne to raise the 40p rate threshold in the Budget by more than the planned one per cent, but are likely to be disappointed.
Belatedly, the Chancellor is now repackaging the rise in the personal allowance as a tax cut for 24 million people on incomes up to £100,000 a year – including those on between £40,000 and £45,000 a year. He will be armed with figures showing that a typical 40p rate taxpayer will pay £350.50 less in tax and national insurance contributions in the current financial year than three years ago because they do not pay any tax on a bigger slice of their income. If the 40p threshold had been raised in line with inflation, those in it would have enjoyed a tax cut twice as large as people paying the 20p basic rate, undermining the Coalition’s claim to be “fair". Belatedly, the Chancellor is now repackaging the rise in the personal allowance as a tax cut for 24 million people on incomes up to £100,000 a year – including those on between £40,000 and £45,000 a year. He will be armed with figures showing that a typical 40p rate taxpayer will pay £350.50 less in tax and national insurance contributions in the current financial year than three years ago because they do not pay any tax on a bigger slice of their income. If the 40p threshold had been raised in line with inflation, those in it would have enjoyed a tax cut twice as large as people paying the 20p basic rate, undermining the Coalition’s claim to be “ fair".
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