UK Politics

Budget 2014: Lawson and Lamont warn over 40p tax rate

Media playback is unsupported on your device
Media captionLord Lamont is worried that 40% will end up as the basic rate of tax

George Osborne must use next week's Budget to raise the threshold for the 40p tax rate, former Conservative Chancellor Lord Lamont has said.

He told the BBC's Newsnight the Tories would no longer be "the tax-cutting party" unless changes were made.

Fellow former Chancellor Lord Lawson, who introduced the band, has said "far too many" people are paying 40% tax.

Prime Minister David Cameron insisted he was committed to delivering tax cuts for low and middle-income earners.

'Dead end'

The coalition government has raised the threshold at which people start to pay tax to £10,000 but the threshold for the higher rate has increased by less than inflation, meaning more taxpayers fall into the 40p band.

Lord Lamont, speaking on Newsnight, said it was a "dead end" to keep increasing the number of those paying the 40p rate.

"I think there ought to be a rise in the threshold of the 40%, maybe to £44,000 or something like that as a first step," he said.

"Long-run, you can't go on and on not increasing this commensurate with earnings because you will end up with a situation where the 40% becomes the basic rate. That is complete nonsense."

He added: "If we go on and on with this policy we will lose the ability to call ourselves the tax-cutting party because more and more people will be paying a rate of tax, which, when it was introduced by Nigel Lawson, was intended to be the tax rate for the very, very rich."

Image copyright PA
Image caption Lord Lawson introduced the 40p tax rate in 1988

There have been calls for a rise in the level at which the rate kicks in, which is currently £41,451. Many Tories say this should take priority over a further increase in the personal allowance from £10,000 to £10,500.

When Lord Lawson introduced the tax rate in 1988 by cutting the top rate of tax from 60p, it was paid by about 1.35 million people.

The number of those paying the higher rate is now expected to rise to more than five million.

Lord Lawson suggested in a Daily Telegraph interview that the chancellor should knock a penny off the basic rate of tax in his 19 March Budget.

'Significant tax cut'

"Far too many people are paying the 40% rate," he said. "The total should be much closer to the number when I was chancellor.

"It was intended for the rich, the well-off. The people who are paying it today are middling professionals who should not be in the higher rate."

Mr Cameron said in a BBC interview: "What I am determined to do is to go on delivering tax cuts for low and middle-income earners, and from April this year there will be £10,000 you can earn before you start paying tax, and that has been benefiting everybody earning up to £100,000.

"That's a significant tax cut, a huge change since I became prime minister, and demonstrates that as we take these difficult decisions in our long-term economic plan to turn our country around and make sure our economy works for everyone, we are reducing people's taxes.

"The point, is people on the upper rate have benefited from the £10,000 tax-free income you can earn before you start paying taxes and that is the way it should be."

More on this story