Teachers and nurses dragged into top-rate tax bracket

Three quarters of a million people, among them nurses and teachers, will be dragged into the higher 40 per cent tax rate from April, according to the Institute for Fiscal Studies (IFS).

Tube drivers, senior nurses and teachers will all be paying the higher rate band – which until last year was the highest tax rate – for the first time.

A further 850,000 people will also have to be sucked into paying the 40 per cent rate if the Coalition Government is to meet its pledge on helping the lowest earners (those with incomes under £10,000) to pay less tax.

All this means that by 2015, 1.6 million more people will pay the 40 per cent tax rate than do so at the moment. The number of taxpayers in the higher bracket will rise from the three million it is now to five million, around one in five of the workforce.

The IFS's calculations reveal that the cost of taking the lowest paid out of tax is being shouldered squarely by what is regarded as "Middle England", although in reality, the immediate changes will only affect the top 10 per cent of earners.

This year, households will lose an additional £200 on average from tax increases and benefit cuts due in April, leaving them £500 poorer overall, according to the Institute's calculations. The Governor of the Bank of England, Mervyn King, warned last week of the tightest squeeze on living standards since the 1920s.

A freeze in the higher rate tax threshold, currently £43,875, was announced while Alistair Darling was Chancellor of the Exchequer as a revenue-raising move. The current Chancellor, George Osborne, decided to extend the policy so that the better-off would not see any benefit from the large rise in the personal allowance from April this year, which will jump from £6,475 to £7,475. That move was a first instalment on the Coalition's target of stopping those earning under £10,000 from having to pay any income tax – a key manifesto pledge of the Liberal Democrats.

Someone earning £43,875 will this year pay £7,480 in tax; next year the bill will be £7,560. The new threshold will also see more families losing their entitlement to child benefit once it becomes means-tested at the threshold rate in 2013.

The policy threatens to reawaken fears within the Conservative Party that its traditional commitment to low personal taxation has been sacrificed to the need to appease the Liberal Democrats. The Conservative Mayor of London, Boris Johnson, last week renewed his calls for lower taxes.

The recent shock figures for growth showing that the economy shrank by 0.5 per cent in the last three months of 2010, also sparked renewed calls for tax cuts to stimulate enterprise and support the stumbling economy.

Overall, ministers in both parties will be pleased that the IFS says that the richest in society will bear the biggest burden. With changes in national insurance, those on more than £150,000 will face a marginal tax rate of 52 per cent.

The question of whether the Chancellor's plans are "progressive" or "fair" has been intensely fought since Mr Osborne unveiled his emergency Budget in June. Around £5.4bn will be taken out of the economy by the tax and benefit reforms to be introduced this year.

This represents an average reduction in household incomes of around £200 in 2011–12, and comes on top of the increases in VAT, fuel duties and insurance premium tax that were levied in January 2011, that are forecast to raise £12.8bn, or around £480 per household on average.

The biggest losers are the very rich, who are particularly affected by the restriction on the amount that can be contributed to a private pension. This is in addition to the measures introduced in April 2010, that brought in a 50p in the pound tax rate for those earning more than £150,000 and withdrew the personal income tax allowance for those on £100,000 or above.

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

Life and Style
A monstrous idea? Body transplants might no longer be science fiction
Science An Italian neurosurgeon believes so - and it's not quite as implausible as it sounds, says Steve Connor
Sport
Demba Ba (right) celebrates after Besiktas win on penalties
footballThere was no happy return to the Ataturk Stadium, where the Reds famously won Champions League
Arts and Entertainment
Natural beauty: Aidan Turner stars in the new series of Poldark
arts + ents
News
Mia Freedman, editorial director of the Mamamia website, reads out a tweet she was sent.
arts + ents
Have you tried new the Independent Digital Edition apps?
News
people
Arts and Entertainment
The write stuff: masters of story-telling James Joyce, left, and Thomas Hardy
arts + ents...begging to differ, John Walsh can't even begin to number the ways
Sport
Jose Mourinho on Sky Sports
footballEXCLUSIVE COLUMN Paul Scholes: It was not a leg-breaking tackle, as the Chelsea manager had claimed
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Telesales / Marketing Executive - B2B - OTE £25,000

    £17000 - £25000 per annum: Recruitment Genius: An opportunity to join this new...

    SThree: Trainee Recruitment Consultant

    £18000 - £21000 per annum + OTE £45,000: SThree: SThree Group have been well e...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE £45,000: SThree: SThree Group have been well e...

    Recruitment Genius: Business Control Manager

    £36000 - £44000 per annum: Recruitment Genius: Encouraging more businesses to ...

    Day In a Page

    HIV pill: Scientists hail discovery of 'game-changer' that cuts the risk of infection among gay men by 86%

    Scientists hail daily pill that protects against HIV infection

    Breakthrough in battle against global scourge – but will the NHS pay for it?
    How we must adjust our lifestyles to nature: Welcome to the 'Anthropocene', the human epoch

    Time to play God

    Welcome to the 'Anthropocene', the human epoch where we may need to redefine nature itself
    MacGyver returns, but with a difference: Handyman hero of classic 1980s TV series to be recast as a woman

    MacGyver returns, but with a difference

    Handyman hero of classic 1980s TV series to be recast as a woman
    Tunnel renaissance: Why cities are hiding roads down in the ground

    Tunnel renaissance

    Why cities are hiding roads underground
    'Backstreet Boys - Show 'Em What You're Made Of': An affectionate look at five middle-aged men

    Boys to men

    The Backstreet Boys might be middle-aged, married and have dodgy knees, but a heartfelt documentary reveals they’re not going gently into pop’s good night
    Crufts 2015: Should foreign dogs be allowed to compete?

    Crufts 2015

    Should foreign dogs be allowed to compete?
    10 best projectors

    How to make your home cinema more cinematic: 10 best projectors

    Want to recreate the big-screen experience in your sitting room? IndyBest sizes up gadgets to form your film-watching
    Manchester City 1 Barcelona 2 player ratings: Luis Suarez? Lionel Messi? Joe Hart? Who was the star man?

    Manchester City vs Barcelona player ratings

    Luis Suarez? Lionel Messi? Joe Hart? Who was the star man at the Etihad?
    Arsenal vs Monaco: Monaco - the making of Gunners' manager Arsene Wenger

    Monaco: the making of Wenger

    Jack Pitt-Brooke speaks to former players and learns the Frenchman’s man-management has always been one of his best skills
    Cricket World Cup 2015: Chris Gayle - the West Indies' enigma lives up to his reputation

    Chris Gayle: The West Indies' enigma

    Some said the game's eternal rebel was washed up. As ever, he proved he writes the scripts by producing a blistering World Cup innings
    In Ukraine a dark world of hybrid warfare and murky loyalties prevails

    In Ukraine a dark world of hybrid warfare

    This war in the shadows has been going on since the fall of Mr Yanukovych
    'Birdman' and 'Bullets Over Broadway': Homage or plagiarism?

    Homage or plagiarism?

    'Birdman' shares much DNA with Woody Allen's 'Bullets Over Broadway'
    Broadchurch ends as damp squib not even David Tennant can revive

    A damp squib not even David Tennant can revive

    Broadchurch, Series 2 finale, review
    A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower: inside the mansion of Germany's 'Bishop of Bling'

    Inside the mansion of Germany's 'Bishop of Bling'

    A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower