Raising 40p rate threshold 'could happen as early as 2016'

PM sets out a clear dividing line with Labour ahead of next year’s election

David Cameron was speaking during his visit to Afghanistan (Getty Images)

Tax cuts for people on the 40p higher rate will start to take effect before Britain is "back in the black" David Cameron said on Friday, as he set out a clear dividing line with Labour ahead of next year’s election.

Speaking during a trip to Afghanistan, Mr Cameron said he saw no need to eliminate the deficit before beginning to raise the threshold at which people are drawn into the 40p rate. His comments go significantly further than his speech to the Conservative Party conference on Wednesday, when he promised to raise the threshold from £41,865 to £50,000 by 2020. They mean the Tories could raise the threshold as early as 2016, rather than delay the move until towards the end of the five-year parliament.

This would be controversial especially as the Tories would also restrict public sector pay and implement a two-year freeze on most working age benefits to find at least £25bn of public sector cuts by 2018. Experts say the Tories now need to identify another £7.2bn of spending cuts to fund Mr Cameron’s tax reductions.

Labour is likely to argue that Mr Cameron's plan would help those at the top end of the income range while penalising those who are not.

But Mr Cameron insisted that it is perfectly possible to implement tax cuts while also cutting the deficit. "What we have shown in this parliament is that it is perfectly possible if you manage the nation’s finances wisely to deliver tax reductions at the same time as making saving and efficiencies," he said.

"In this parliament we had to make something like £100bn in cuts but at the same time we were able to make tax cuts in terms of the personal allowance of £9bn.

"So in a parliament when we will have to make further spending reductions but not as much as the previous parliament I think it is perfectly possible to achieve the kind of tax reductions that we have set out."

Asked specifically about the higher rate threshold, Mr Cameron added: "What we are saying about these tax reductions is that they are ones that we will make during the parliament.

"We will set out the exact detail in each Budget. But as long as you have got a clear plan and a clear pathway you don't have to wait until Britain is back in the black before you make progress with these tax reductions.

"But I am not announcing now what's going to happen in each Budget. I will leave that to the Chancellor."