In his summer Budget last year, the Chancellor increased the single person’s income tax allowance from £10,800 to £11,000 from this April. He also raised the higher-rate threshold from £42,385 to £43,000 from April.
To keep on schedule with his target, he is expected to raise the threshold for the 40% tax band by at least another £1,400.
Pressure to find the cash for the income tax cuts has intensified after the Chancellor abandoned plans for a tax raid on middle-class pensions.
On Friday, Treasury sources confirmed a possible overhaul of the pension tax relief system had been postponed indefinitely. It was thought the shake up could have saved the Treasury at least £6billion a year. Some Tory insiders now expect a rise in petrol and diesel duty to fill the gap in Treasury plans.