The Government is reportedly considering a two-year extension to the income tax thresholds freeze as the Prime Minister and Mr Hunt scramble to fill a £40billion black hole in the public finances.

The Bank of England projects that the current freeze will raise £30billon by 2025-26. Think-tank the Institute for Fiscal Studies (IFS) said extending it by two years could raise a further £4-5billion.

The IFS study estimates 7.7million workers will be paying the 40p tax rate of income tax by 2025-26, compared with 4.6million if there was no freeze and thresholds rose with inflation.

Separate analysis by the Centre for Economics and Business Research suggests a further three million workers could be dragged into paying the basic and higher rate of tax during the potential two-year extension period covering 2026-27 and 2027-28.

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