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Where Taxpayers and Advisers Meet
Lamont Worries 40% Could Be ‘Basic Tax Rate’, Challenges Osborne Over Budget
30/04/2014, by Nigel West, Tax Articles - Savings and Investments, Pensions and Retirement
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Introduction

In recent weeks, Lord Lamont controversially claimed that the Tories would no longer be “the tax cutting party” unless George Osborne announced mass changes in his next budget (announced last month). A former Chancellor of the Exchequer, Lord Lamont’s comments have been seized upon by many on the left as proof that the Tory party is currently fracturing over the issue of tax, reverting to its true ideological colours.

“Too Many” People Pay 40% Tax Rate

The basis of Lord Lamont’s claim that the tax system must be drastically altered stems from his belief that “far too many” people are paying the 40% tax rate and, if there are not wholesale changes, the 40% figure that was originally intended to affect the super rich will become the “basic tax rate”.

Remarks Backed by Ex-Chancellor Lawson

Lamont claimed that in the (at the time unannounced) budget, George Osborne must announce a change to the 40% tax rate, increasing the threshold substantially in order to stop some of the richest people in the UK from leaving the country. His remarks were advanced further by Lord Lawson who himself admitted that “far too many people” were paying the 40% tax rate. The backing of Lord Lawson here is significant, as he was the person who introduced the 40p rate back in 1988.

Work Needs to Reflect the ‘Squeezed Middle’

A few years ago, the coalition government did alter the tax threshold at the lower end of the scale, meaning that people would have to start earning £10,000 before they were taxed on their income. Although widely applauded, the gap at the other end has narrowed considerably, and because the limit has risen below inflation, more and more people are now being forced into the 40p band, meaning that they are now worse off than they were 5 years ago.

Lord Lamont proposed a rise to around £44,000 as “a first step”. Although his comments are undoubtedly hyperbolic, many feel as though he does have a point, and the capturing of the people who have been affected by a lack of change in the 40% tax bracket could be crucial to the next election. With Ed Miliband earlier targeting these people, calling them ‘the squeezed middle’, many on the Tory front and back benches feel as though the party simply must do more over the issue of tax; something that is seen as an inherently Tory issue.

If Osborne Doesn’t Act, Miliband Will

Back when Lord Lawson first introduced the tax rate, it affected 1.35 million people; right now it affects over 5 million. As Lord Lawson Lamont correctly warned, “we cannot go on like this”. Whether Osborne reacts in future economic announcementsor Miliband reacts in 2015, a change to the tax rate appears to be imminent.

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