1.6 million more people to pay higher rate tax

31 January 2011

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."

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