Chancellor Osborne will raise the higher rate threshold by more than expected from £42,385 to £45,000 from April 2017.

He said the move was to reward hard working families. After several years of restraint on tax perks for higher income individuals it was seen as a signal that middle income families will be better looked after.

The Personal Allowance for basic rate tax payers will increase from £10,600 to £11,500 at the same time. It will increase to £11,000 from April.

Mr Osborne said the moves would “reduce tax on working people.”

Mr Osborne said that the higher rate threshold increase by over £2,000 to £45,000 in 2017-18 will be the biggest above inflation cash increase to this threshold since it was introduced by Lord Lawson in 1989.

The Treasury said: “This delivers the government’s ambition to reverse the trend whereby an increasing number of individuals are faced with paying the higher rate. In 2017-18, there will be 585,000 fewer higher rate taxpayers than at the start of the parliament.”

The Conservatives have promised to raise the personal allowance to £12,500 by 2020-21. The threshold at which people start paying the higher rate of tax will go up to £50,000 by 2020-21, the Conservatives have said.