Osborne urged to introduce tax band for 'squeezed middle'

GEORGE OSBORNE has been lambasted for making 'unimaginative' tax changes in last week's Budget which could drag millions of workers into a a higher rate tax band.

In a move to offset the cost of increasing the personal tax allowance the government is to lower the threshold at which people enter the 40p tax band from next year.

According to Stephen Herring, senior tax partner at BDO, Osborne has 'missed a trick' by lowering the point at which people enter the 40p band from earnings of £42,475 to £41,450.

"The continual raiding by the chancellor and his predecessor of the basic rate tax band has meant that the oft-cited ‘squeezed middle' continues to be ignored," Herring said.

"By not introducing another 25% or 30% tax band before the 40% level is reached, he has failed to restore incentives and fairness for the increasingly ignored middle income group. The coalition government must exercise more imagination in future budgets if the income tax system is to be properly responsive to fairness across the whole income spectrum."

Last week, The Institute of Fiscal Studies estimated that the government's decision to lower the threshold could mean that the number of people paying 40% tax could rise from 3.7 million in 2011 to five million by 2014.