Revenue & Customs estimates show that the number of people who are liable to pay income tax in 2005-06 is about to climb to 30.5 million, having passed 30 million in the previous year.

The latest steep increase in the number of taxpayers means that the total of people liable to pay income tax has jumped by 4.7 million since Labour took power in 1997 — rising from 25.7 million in the Conservatives’ final year in office.

The figures will damage Labour efforts to play down Tory charges over the Government’s record on tax. They emerged as the influential Institute for Fiscal Studies (IFS) sounded renewed warnings that a Labour or Liberal Democrat government would probably have to raise taxes by £11 billion, equivalent to 3p on basic rate tax or national insurance, to ease mounting strains on the nation’s finances.

The institute said that Conservative plans to spend £8 billion less than the other parties meant that they might be able to avoid increasing taxes — but only if they could achieve their planned savings as easily as they claim is possible.

The Revenue’s figures showing the continued increase in taxpayer numbers sparked further accusations from tax experts that Mr Brown is resorting to raising revenue by stealth through “fiscal drag”.

This happens when the Chancellor increases tax thresholds only by inflation or less, so that, as pay rises faster, more people tax at higher rates, although the number of taxpayers can also be raised by a growing workforce as the population or employment rates increase.

“This Chancellor more than any other I can remember has exploited fiscal drag for the advantage of the Revenue’s coffers. He has dragged more people into the tax, and more of those into paying higher rate tax,” said Mike Warburton, senior tax partner at Grant Thornton, the leading accountancy group. As a result of fiscal drag, the amount paid in income tax has doubled since 1997, to an estimated £138 billion in 2005-06, without any increase in the tax rate.

But the institute said yesterday that the post-election Chancellor was likely to have to raise tax rates to curb government borrowing which, it said, left Britain with “one of the largest structural budget deficits in the industrialised world”.

The institute argued that the Treasury was too optimistic over its expectations for slower spending growth, and for higher revenues based on no increase in tax rates.

There was embarrassment for Labour yesterday when a minister said the party would scrap the council tax. Charlotte Atkins appeared on local radio to say that Labour planned to get rid of the council tax “because it was regressive”. Labour has pledged only to review the system, while the Liberal Democrats have promised to scrap it. Her hurried retraction could not halt the embarrassment.

Nick Raynsford, the Local Government minister, rushed to correct her. “Charlotte simply got it wrong. As we have repeatedly made clear, our policy is to retain but reform council tax,” he said

• Tony Blair may have failed to meet his pledge to raise health service funding to the European average level, despite increases in NHS spending. The IFS said that with NHS funding now worth 8.6 per cent of national income, this matched a simple average of health spending across EU countries in 1998, when Mr Blair made his promise.

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