1.6 million more people to pay higher rate tax
From April an additional 750,000 people will be forced to pay higher rate tax for the first time, according to the Institute of Fiscal Studies.
This isn't because wage inflation has pushed more workers into the higher rate tax band rather it's because the rate at which higher rate tax is charged is to be reduced. Currently 40% tax is only charged on earnings in excess of £43,875, however from 6 April this will drop to £42,475.
By 2014 a further 850,000 are expected to rise into the new tax bracket creating a total of 1.6 million new higher rate tax payers.
Middle-class families are expected to be the hardest hit as any household with a higher rate taxpayer also stands to lose child benefit from 2013. The benefit cut will see affected families with three children losing almost £2,500 a year.
The changes to the higher rate tax threshold are being implemented as part of government plans to remove lower-paid workers from the income tax system. The level at which people start paying tax on their earnings will be raised by £1,000 to £7474 and to £10,000 by the next election.
James Brown, senior research economist at the IFS, said: "Further reductions in household income are inevitable as government policies aimed at helping to reduce government borrowing from its post second world war high are introduced."
A spokesman for the Treasury defended the changes and said: "The government has had to make tough choices but has always been clear those with the broadest shoulders should carry the greatest burden."
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
This is more usually a feature of car insurance but it can also crop up in contents, mobile phone and pet insurance policies. An excess is the amount of money you have to pay before the insurance company starts paying out. The excess makes up the first part of a claim, so if your excess is £100 and your claim is for £500, you would pay the first £100 and the insurer the remaining £400. Many online insures let you set your own excess, but the lower the excess, the more expensive the premium will be.