New tax trap for middle Britain

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  • Critics have warned that many middle-earning families could face a ‘double whammy’ as the proposed Government tax reforms could drag them in to a higher rate tax bracket in April.

    Nearly a million people in the UK could see their tax rates rise to as much as 83%, according to the Insitute for Fiscal Studies (IFS).

    The revelation comes just days after Mervyn King, governor of the Bank of England, announced that wages were set for their longest continuous squeeze since the 1920’s, with changes in April dragging 750,000 people into the 40% tax bracket.

    Theaverage family’s income is expected to drop by £200 a year, in addition to the extra £480 a year that households are paying due toincreased VAT and fuel duty introduced this month.

    Gavin Kelly, of the Resolution Foundation think tank, says: ‘Looking at these changes, there is no doubt that working parents on wages of around £40,000 will soon find that a pay rise leaves them little better off – or possibly even worse off.’

    With Conservative backbenchers growing restive about the tax burden on middle Britain, Andrew Tyrie, who chairs the Treasury select committee, said it would want ‘to look carefully at the distributional impact and the effect on work incentives right across the income range, and will be taking evidence from the IFS.’

    The coalition is planning £18billion in benefit cuts coming into effect in the spring. From 2013, the effect of rising marginal tax rates will see the complete withdrawal of child benefit from all earners who fall into the 40% tax band.

    Describing the measure as ‘a matter of fairness’, a Treasury spokesman said: ‘Tax credits will be targeted at those who need them most. At the same time, personal tax changes will remove nearly a million of the lowest earners out of tax altogether and around 23 million basic rate taxpayers will gain by £170 per annum.’

    How do you feel about these drastic tax changes? Do you think they are a necessary measure to ensure Britain’s financial stability? Let us know by posting your thoughts below.


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