Budget 2014: Osborne Tax relief
Budget 2014: Osborne Tax relief Reuters

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.