Brown to put 3m into top tax band

GORDON BROWN aims to double the number of workers paying the top rate of income tax to a record six million, it has emerged.

The Chancellor's scheme - designed to fill the black hole in his spending plans - will see many more key workers such as senior nurses, teachers and police officers being forced to pay 40% tax on their earnings over the next five years.

They will be sucked in by Brown's deliberate failure to adjust tax bands to match the increase in wages.

The higher-rate threshold - which is now £30,500 - has been steadily falling behind wage inflation, meaning more than a million more Britons currently pay higher-rate tax than in 1997.

According to experts, Brown is relying heavily on this stealth process - known as 'fiscal drag' - to bail him out of his ballooning debt crisis.

The Chancellor's scheme was hidden away in the paperwork issued with last week's Pre-Budget Report. But it has been uncovered by the experts from the Institute for Fiscal Studies and the National Institute of Economic and Social Research.

It means the number of workers paying top rate tax will go up from two million when New Labour came to power to six million by 2007-8. Three million currently pay the high rate.

The move should produce at least another £10bn for the Treasury.

The experts told the influential Commons Treasury Select Committee, which is examining the Pre-Budget package, that this explained why Brown seemed so confident he could make ends meet - despite an enormous rise in borrowing and a relatively flat economy.

A central plank of Labour's return to power was a pledge not to raise income tax. This will be effectively a back-door increase.

The experts from two of the most respected and independent economic think-tanks told MPs more and more ordinary workers will be dragged into the higher-rate bands.

The Chancellor is desperate to rake in more cash because his forecasts for how much he will have to borrow to pay for extra spending on schools, hospitals and transport have gone awry.

The new borrowing forecast for 2003 is £37bn, up £10bn on Brown's prediction in his April Budget. Borrowing in 2004 will be £ 31bn, up from the £27bn he predicted in April, for example.

Pressed by Tory committee member David Ruffley, Institute of Fiscal Studies director Robert Chote said one of the key questions over the Pre-Budget statement was how Brown could balance his books over the next five years on what he called 'unchanged policies'.

He said it was highly significant that the Treasury had failed to tell anyone what it expected to happen to workers' earnings over that period. If they go up by an average 2% - slightly less than normal - 'then that would see the number of people paying higher rate tax roughly double over the next five years'.

This, he said, had serious implications for pay packets. More and more middle-income workers are being brought into the top rate tax net.

When Tony Blair entered Downing Street, a worker had to earn 161% of the average wage to start paying top rate. That has fallen to 143% - and Chote warned that it will come down further.

'If you have five years of real earnings growth at 2%, you are probably down to 129%,' he said. 'That would increase the number of people paying higher rate tax from about three million at the moment to around six million.'

He told MPs: 'So I think we need to be a little careful about what we think of as unchanged policies. They are not quite as unchanged as some people think.'

Martin Weale, of the National Institute of Economic and Social Research, said Treasury optimism was being fuelled by 'the assumption that taxes rise even when nothing happens'.

From his reading of the Pre-Budget papers, Weale said, it was not economic recovery that would be delivering a surplus of cash to the Treasury. Rather, it would benefit by 'the tax limits biting lower and lower down'. He added: 'In my view an alternative way of describing that would be to say it is increased taxation.'

Ruffley expressed outrage at Brown's sleight of hand, saying: 'Buried away in his Pre-Budget literature is the terrible truth, that middle England is having to face yet more stealth taxes. Why doesn't he just come clean and admit he is going to have to raise taxes to fill the holes in his fiddled figures and dodgy documents?'