Summer Budget to promote UK

Osborne may cut higher rate income tax to 40p

George OsborneChancellor George Osborne is considering cutting the top rate of income tax to 40p in next month’s Budget in a move aimed at promoting Britain as a place in which to do business.

According to City sources, Mr Osborne will use the 8 July statement to position the UK as  a “lower-tax, lower-welfare” economy.

Tory grandees, including his predecessor Lord Lawson, are said to be pressing him to cut the current 45p tax rate on earnings above £150,000.

This would fulfil a goal that was denied to the Conservatives by their Liberal Democrat coalition partners.

Some tax experts say that a reduction in the rate will be revenue neutral because of higher activity and Lawson tells the Financial Times today that this was his experience when he brought the top rate down to 40% in 1988.

Mr Osborne cut the rate from 50p after Labour increased it in 2009 in the wake of the financial crisis. Labour had supported a return to the higher rate if the party had won the General Election and would have been backed by the Scottish National Party.

The SNP may be tempted to impose a 50p rate in Scotland although there are as few as 14,000 higher rate tax payers north of the border which would raise a negligible sum.

Mr Osborne is also set to use next month’s Budget to raise the income tax threshold for those on low earnings and will look to make progress towards a £50,000 starting rate for the current 40p tax.

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