The Institute of Fiscal Studies (IFS) has said two million more people will fall into the 40p income tax rate on the back of George Osborne’s Budget.
The chancellor resisted calls to raise the higher rate threshold, which currently stands at £41,450. Instead he chose to raise the tax-free personal allowance from £10,000 to £10,500.
This upset campaigners for the threshold to be increased, who point out that this level has risen by less than inflation, dragging more people into the 40p band.
Research from the IFS indicated higher rate taxpayers will be £546 a year worse off following the Budget.
David Phillips, senior research economist at the IFS, told the Daily Mail: ‘Our best estimate of how much it would cost to increase the higher-rate threshold to £47,845 is £3.6 billion a year.
‘This would then leave most higher-rate taxpayers £546.04 better off in 2015/16 than under the plans inherited from Labour.’
Mark Littlewood, director general of the Institute of Economic Affairs (IEA) think-tank, added: ‘Under George Osborne, nearly 1.5 million more taxpayers are paying this rate. This is an attack on aspiration and entrepreneurship.’
In the run-up to the Budget former Conservative chancellor Lord Lamont had urged Osborne to raise the 40p threshold, telling BBC’s Newsnight that ‘far too many’ people are paying the 40% tax.
Lawson described the increase in the 40p rate as a ‘dead end.’
"I think there ought to be a rise in the threshold of the 40%, maybe to £44,000 or something like that as a first step,’ he said.
‘Long-run, you can't go on and on not increasing this commensurate with earnings because you will end up with a situation where the 40% becomes the basic rate. That is complete nonsense.’