THE number of people paying higher rate tax has risen by nearly two thirds since Labour first came to power, new figures show.

Around 3.4 million people are now caught by the 40 per cent tax rate,

up from 2.2 million when Tony Blair was first elected Prime Minister in 1997.

Accountants Grant Thornton warned that this figure could rise to four million by 2008 if Labour won a third term in office - double the num-ber of people who paid higher rate tax when they first came to power.

Grant Thornton Poole tax partner Rowena Marsh said the number of people caught by the higher rate rose by between 100,000 and 150,000 people a year as a result of the threshold being increased in line with inflation rather than earnings.

In 1997 the 40p-in-the-pound rate kicked in at £29,265 but that has risen to just £36,145 today - despite average earnings rising by around 35 per cent during the same period.

But a Treasury spokeswoman said: "The average household will be £850 a year better off in real terms this year than in 1997 as a result of the personal tax and benefit measures we have introduced.

"The policy of raising income tax allowances in line with inflation was established by Parliament back in the 1970s so that allowances would keep pace with increases in the cost of living, and it has been the policy of successive governments ever since."