Mr. Sebastian Barnes:

The increase in tax bands is of the order that would be needed to compensate for the fact that as people's wages go up a bit faster than usual because of inflation, more income would be dragged into the higher marginal tax rates and they would pay more if the bands remained fixed. This very much depends on exactly what happens to wages, but in economic terms it keeps the tax system as it was before in real terms. There is no real economic or distributional impact; it is keeping the system as it currently is. If you did not make that adjustment more taxes would be going up and more income would be dragged into those higher categories. In recently years we have seen partial indexation. That means there has been some offset for that but not completely. One of the reasons why income tax has grown quite strongly is that there is more income being drawn into those upper categories. From an economic perspective, this is essentially neutral. You can take a view as to whether you think it should be neutral or not but those sorts of changes would broadly be neutral in the real amount of tax people are paying as a share of their incomes.