Budget 2014: Osborne Tax relief
Budget 2014: Osborne Tax reliefReuters

UK Chancellor George Osborne is raising the personal income tax allowance next year to £10,500 per person from £10,000, as well as raising the threshold for the 40% tax bracket.

In the government's 2014 Budget announcement, Osborne will increase the 40p tax threshold to £41,865, from £41,540.

40p Tax Rate

The architect of the 40p tax rate, Lord Nigel Lawson, called for Prime Minister David Cameron and Osborne to scrap the tax bracket as too many middle-income professionals have fallen into the higher band.

Lord Lawson, who introduced the 40% tax rate 25 years ago, said pushing more "middling professionals" into the tax band would be a "mistake."

While the Tories have pledged to help the poorest Britons by raising the tax-free personal allowance, which has dragged more than two million people out of the tax system, middle class pockets have become increasingly tight as wage rises drag more people into the higher tax band.

The 40% tax band was introduced a quarter of a century ago by the former Conservative Chancellor Lawson. At the time, only one in 20 people paid the higher rate, compared to one in six people today.

This equates to about 1.35  million in 1988, compared to 4.4 million people in 2013.

Over the next year, this number is set to rise to five million.

Labour's Tory Tax Smear Campaign

Britain's opposition slammed the Conservative party for 24 "tax rises" under chancellor George Osborne over the last day.

Labour's shadow chief secretary to the Treasury, Chris Leslie, said voters and companies should not be hoodwinked over possible taxation changes when Osborne has pushed through a range of tax rises or income threshold amendments over the last four years.

Average earnings in real terms are £1,600 a year lower today than in May 2010, claimed Labour.

When all tax changes are taken into account, Treasury figures show that taxes have already increased by £24bn so far this parliament, with another £3bn of tax rises to come in 2014-15.

"A Labour Budget this week would cut taxes for 24 million people on middle and lower incomes by introducing a lower 10p starting rate of tax," said Leslie.

"We'd get young people off benefits and into work with a compulsory jobs guarantee, freeze energy bills, expand free childcare, get more homes built and cut business rates for small firms. We'd also reverse the £3bn tax cut for the top one per cent of earners to get the deficit down in a fairer way."

Labour's analysis of figures from the IFS show that families with children are on average £891 worse off this year due to the tax and benefit changes introduced since 2010.

The 24 Tory 'Tax Rises' Claims by Labour

1. VAT increased to 20% from 2011

2. Income Tax age-related allowances frozen and eligibility restricted ("Granny Tax") from 2013-14

3. Income Tax higher rate threshold cut to £42,475 in 2011-12

4. Higher Income Child Benefit Charge introduced 2013

5. National Insurance Contributions rates, limits and thresholds increased in line with CPI rather than RPI from 2012-13

6. Income Tax higher rate threshold frozen at £42,475 in 2012-13

7. Insurance premium tax increased – from 2011

8. Capital Gains Tax increased – to 28% for higher rate taxpayers from June 2010

9. New Beer Duty introduced on high-strength beers from 2011

10. Duty on hand-rolling tobacco increased by an additional 10% from 2011-12

11. ISA subscription limit uprated in line with CPI rather than RPI from 2012-13

12. National Insurance Contributions changes to contracting-out rebates from 2012-13

13. Capital Gains Tax annual exempt amount frozen, 2012-13

14. Stamp Duty Land Tax increase to 7% on properties over £2m from 2012-13

15. VAT increases on a range of items, including caravans, sports drinks, and listed buildings from 2012

16. Duty on tobacco increased by RPI + 5% in 2012

17. Income Tax higher rate threshold cut to £41,450 in 2013-14

18. Capital Gains Tax annual exempt amount increased in line with CPI rather than RPI from 2013-14

19. Income Tax cap on reliefs introduced from 2013-14

20. Pension tax relief restricted from 2014-15 21.

21. Income Tax higher rate threshold Increase capped at 1% in 2014-15 and 2015-16

22. Capital Gains Tax annual exempt amount increase capped at 1 per cent, 2014-15 and 2015-16

23. Inheritance Tax threshold frozen in 2015-16

24. National Insurance Contributions ending of contracting-out rebates from 2016-17