Middle class set for tax cut in the Budget

Osborne ready to raise 40p threshold

GEORGE Osborne is planning a tax giveaway for middle- class voters in next week’s Budget.

Government sources say the Chancellor is set to raise the threshold at which people start paying 40p tax, following years of it being held down.

The starting point for basic rate tax will also rise faster than expected, as Mr Osborne accelerates progress towards meeting two key manifesto promises on tax.

But motorists face a potential sting in the tail, with Mr Osborne reportedly considering a 2p rise in fuel duty – the first for years – to help cut the deficit.

Workers currently start paying 40p tax when they earn £42,385. This is due to rise to £43,000 from April before it hits £43,300 in 2017. The Conservatives have pledged to raise it to £50,000 by 2020.

A senior Government source said the Chancellor is keen to use the Budget to ‘accelerate progress’ towards the target.

The Tories also promised to raise the threshold for basic rate tax from £10,800 to £12,500 by 2020. This timetable could also be brought forward next week.

The Treasury declined to comment. Sources said Mr Osborne had not yet received the latest forecasts from the independent Office for Budget Responsibility, which will determine how much, if any, cash he can give away.

But he is under intense pressure from Conservative MPs to George Osborne: Plans for Budget tax giveaway move more quickly on the 40p tax threshold.

The number of people paying this rate has risen by about two million since 2010, to five million – as a result of Coalition decisions to cut the threshold to help pay off the huge budget deficit left by Labour.

Mr Osborne also faces calls to scrap the 45p top rate after publishing figures last week that suggested reducing i t from 50p brought in an extra £8billion from high earners.

But Treasury sources played down the prospect of a further cut in the top rate. One source said the priority is to meet manifesto pledges on raising tax thresholds.

The Chancellor is keen to burnish his image with Conservative MPs. Eurosceptics are angry about his bullish promotion of the EU and others are concerned he has been forced to abandon flagship pension reforms and reducing the cost of tax credits.

Tory MP Nadine Dorries yesterday warned Mr Osborne was ‘less sellable’ as a party leader and prime minister ‘by the day’.

He also needs to identify new sources of revenue, amid fears a slowdown in the world economy could knock the UK’s deficit reduction off course.

Figures buried in Treasury documents last year suggest takings from fuel duty are expected to increase at the rate of inflation each year till 2020. This could mean a rise of more than 2p a litre in April and steeper rises after that.

One minister said: ‘ The simplest way to raise cash is to put 2p on petrol. Prices are so low at the moment that people will hardly notice the difference.

‘It’s the right thing to do, but there’s a danger f or George because he’d get accused of abandoning blue collar workers.’

Laws allowing bankers to be jailed if their institution fails come into force today.

Reforms i ntroduced by Mr Osborne mean reckless bankers could face unlimited fines or jail terms of up to seven years in the event of a collapse.

Last night, the Chancellor said that the reform showed ministers had ‘ learned the lessons of the past’.