Budget tricks: is Middle Britain really getting a tax cut?

We learn this morning that George Osborne is planning a tax cut for the middle class, by raising the earnings threshold for the 40p tax. Of course, this was raised automatically in the Labour years (in line with RPI inflation) and even tricksy Gordon Brown never billed it as a tax cut.

It’s only a tax cut if the threshold rises faster than average wages (i.e., the green lie above). If the threshold is frozen, or falls at lower rate the average earnings, then it’s a tax rise. This point is often lost on broadcasters, and HM Treasury is in no rush to explain things. So keep your eyes on this: it seems certain that Osborne will raise the threshold, but unless it’s rising faster then earnings then it ain’t a tax cut.

Osborne’s election-time pledge to raise the 40p limit to £50k (the red box in the above picture) would be a tax cut, but a fairly small one because it’d have risen to £48,820 if he’d kept pace with earnings.