GEORGE OSBORNE is planning a bonus for the middle classes in the budget on March 16.
The chancellor wants to offer an inflation-busting rise in the level at which people start paying the higher rate of income tax, after ditching plans to raid pensions. People currently start paying the 40p rate of tax when they earn £42,385. That is due to rise to £43,000 from April before it hits £43,300 next year.
Yet senior government sources say Osborne wants to “accelerate progress” towards his target of £50,000 in 2020.
The single person’s allowance — the amount of income one can earn before paying any tax — is also set to increase faster than previously stated. It is due to rise to £10,800 from April and £11,000 next year. Osborne wants the allowance to reach £12,500 by 2020.
The chancellor is also examining whether he can afford to cut the top rate of tax from 45p in the pound to 40p, after statistics showed the tax-take from the richest in society actually went up by £8bn a year when it was cut from 50p to 45p. Sources say this is unlikely, however, since Osborne has been warned by David Cameron and other senior colleagues that this could be seen as the Tories pandering to the rich, which might alienate voters before the EU referendum.
Advertisement
“George has been told not to rock the boat,” one cabinet source said.
Osborne will have to make bigger reductions to public spending than he had planned after a downturn in the public finances, though the cuts are likely to fall in the final years of this parliament.
The tax deliberations come after Osborne ditched plans for an overhaul of pensions that would have slashed tax relief for higher earners.
In order to balance the books he is now examining whether to raise fuel duty.
A 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.
Advertisement
“It’s the right thing to do but there are dangers for George because he’d get accused of abandoning blue-collar workers.”
Senior Tories believe Osborne can raise the levy in line with inflation and still stick to the terms of the Conservative manifesto, which boasted of having “frozen” duty because the party could argue in real terms the price had stayed the same.
Tory MPs are demanding deeper spending cuts, lower income tax and reductions in capital gains tax.
A former minister accused Osborne of putting his own ambitions ahead of the needs of the economy, however. He said: “We’ve just won an election. This is usually the time in a parliament when you get to grips with the public finances. He should be taking an axe to spending but because of the referendum and his leadership ambitions he won’t do everything that is necessary.”
Osborne will also announce a £100bn British sovereign wealth fund, created by merging council pension funds, and plans to part-privatise Britain’s rail network.