George Osborne 'may raise level at which people pay 40p income tax rate'

The Chancellor is considering raising the level at which people start paying the higher rate of tax after scrapping plans for a raid on pensions tax relief, according to reports.

George Osborne wishes to "take a step" towards a £50,000 target by 2020 in his Budget on March 16 in a boost for middle earners, The Sun on Sunday suggested.

The 40p rate threshold of income tax is currently set at earnings of £42,385 and is due to rise to £43,000 from April before it hits £43,300 in 2017.

Mr Osborne is also reportedly examining a quicker increase in the personal allowance, which is due to rise to £10,800 from April and £11,000 in 2017, to reach £12,500 by 2020, The Sunday Times reported.

The paper suggested Mr Osborne was weighing up cutting the top rate of tax from 45p to 40p and whether to raise fuel duty.

Writing in The Mail on Sunday, Tory MP Nadine Dorries, accused Mr Osborne of becoming "less sellable" as a future leader and Prime Minister "by the day".

Labour former shadow work and pensions secretary Rachel Reeves urged the Government to extend its childcare offer for two-year-olds.

She told Sky News' Murnaghan: "What I would like to see is a universal offer of childcare, now that's expensive, but one way to move in that direction would be instead of cutting inheritance tax, which last year benefited just 4.9% of estates, instead of increasing the threshold at which you have to pay inheritance tax, let's use that money, a billion pounds a year by the end of this Parliament, to put it into investing in childcare and then you could achieve some of those things."

The Chancellor abandoned plans for a raid on tax relief in this month's Budget following stark warnings from experts and resistance from Tory MPs.

But analysts fear the Chancellor has only postponed the changes and called for a period of stability before any further reforms are made.

The Chancellor had been reportedly considering unveiling plans to make pensions more like Isas in the Budget.

He was also thought to be looking at an alternative option of setting a flat rate of tax relief - something which many Tories feared would have been unpopular with higher earners who would lose their more generous entitlement.

An Isa-style system would have removed the up-front tax relief on contributions, but allowed withdrawals to be made tax-free instead.

But doing so would have reduced the incentive to save and could have meant people felt less inclined to keep their money in their pot.

A Treasury source confirmed Mr Osborne had ditched the idea of making changes because he had "always been clear he would not do anything to damage saving".

Shadow chancellor John McDonnell accused Mr Osborne of "yet again ducking a big decision and putting the interests of his party ahead of those of our country".

He said: "This decision suggests George Osborne is only interested in securing the future leadership of his party."