600,000 more to fall into higher rate tax band

AN ADDITIONAL 600,000 people will be taken into the 40p tax band in 2015/16, growing to 5.3 million from 4.7 million.

During the government’s term of office, some two million more people have entered the bracket, according to the Institute of Fiscal Studies. The chancellor is raising the threshold up to £41,865 from £41,450, then £42,285 the following year; effectively 1% increases year-on-year.

But the IFS’s Budget analysis shows while the threshold is rising, wages are growing faster, dragging more workers into the higher rate.

The think tank also found that, while George Osborne’s tax cuts are permanent, moves to stimulate the Treasury’s income will only provide a brief impact. For example, cash generated from reforms to private pensions will drop by the end of the decade before eventually becoming an expense to the public purse.

IFS director Paul Johnson said: “The government is expecting the long-term costs of public service pensions to rise. That worsens the public finances. The Treasury is, probably sensibly, ‘charging’ spending departments for these increased costs.

“Because it is taking money from them, it is saying it has extra money to spend. A worsening of long run public finances gives the Treasury extra money to spend now. That is not a sensible way to think about fiscal policy.”

Related reading