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

PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
News
Teeth should be brushed twice a day to prevent tooth decay
education
News
Bryan Cranston as Walter White, in the acclaimed series 'Breaking Bad'
news
Sport
footballChelsea 6 Maribor 0: Blues warm up for Premier League showdown with stroll in Champions League - but Mourinho is short of strikers
News
Those who were encouraged to walk in a happy manner remembered less negative words
science
Arts and Entertainment
Princess Olga in 'You Can't Get the Staff'
tvReview: The anachronistic aristocrats, it seemed, were just happy to have some attention
News
Renee Zellweger as Bridget Jones
i100
Life and Style
tech

Board creates magnetic field to achieve lift

News
There have been various incidents of social media users inadvertently flouting the law
news

Life and Style
Stack ‘em high?: quantity doesn’t always trump quality, as Friends of the Earth can testify
techThe proliferation of online petitions allows us to register our protests at the touch of a button. But do they change anything?
News
Bourgogne wine maker Laboure-Roi vice president Thibault Garin (L) offers the company's 2013 Beaujolais Nouveau wine to the guest in the wine spa at the Hakone Yunessun spa resort facilities in Hakone town, Kanagawa prefecture, some 100-kilometre west of Tokyo
i100
Sport
CSKA Moscow celebrate after equalising with a late penalty
footballCSKA Moscow 2 Manchester City 2: Premier League champions let two goal lead slip in Russia
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

    Helpdesk Analyst

    £23000 per annum + pension and 22 days holiday: Ashdown Group: An established ...

    Senior Helpdesk Analyst / Service Desk Co-ordinator

    £27000 per annum + pension, 22 days holiday: Ashdown Group: An established ind...

    Senior Pensions Administrator

    £23000 - £26000 Per Annum: Clearwater People Solutions Ltd: Our client is curr...

    Corporate Actions Administrator / Operations Administrator

    £25 - 30k: Guru Careers: A Corporate Actions Administrator / Operations Admini...

    Day In a Page

    Indiana serial killer? Man arrested for murdering teenage prostitute confesses to six other murders - and police fear there could be many more

    A new American serial killer?

    Police fear man arrested for murder of teen prostitute could be responsible for killing spree dating back 20 years
    Sweetie, the fake 10-year-old girl designed to catch online predators, claims her first scalp

    Sting to trap paedophiles may not carry weight in UK courts

    Computer image of ‘Sweetie’ represented entrapment, experts say
    Fukushima nuclear crisis: Evacuees still stuck in cramped emergency housing three years on - and may never return home

    Return to Fukushima – a land they will never call home again

    Evacuees still stuck in cramped emergency housing three years on from nuclear disaster
    Wildlife Photographer of the Year: Intimate image of resting lions claims top prize

    Wildlife Photographer of the Year

    Intimate image of resting lions claims top prize
    Online petitions: Sign here to change the world

    Want to change the world? Just sign here

    The proliferation of online petitions allows us to register our protests at the touch of a button. But do they change anything?
    Ed Sheeran hits back after being labelled too boring to headline festivals

    'You need me, I don’t need you'

    Ed Sheeran hits back after being labelled too boring to headline festivals
    How to Get Away with Murder: Shonda Rhimes reinvents the legal drama

    How to Get Away with Murder

    Shonda Rhimes reinvents the legal drama
    A cup of tea is every worker's right

    Hard to swallow

    Three hospitals in Leicester have banned their staff from drinking tea and coffee in public areas. Christopher Hirst explains why he thinks that a cuppa is every worker's right
    Which animals are nearly extinct?

    Which animals are nearly extinct?

    Conservationists in Kenya are in mourning after the death of a white northern rhino, which has left the species with a single male. These are the other species on the brink
    12 best children's shoes

    Perfect for leaf-kicking: 12 best children's shoes

    Find footwear perfect to keep kids' feet protected this autumn
    Anderlecht vs Arsenal: Gunners' ray of light Aaron Ramsey shines again

    Arsenal’s ray of light ready to shine again

    Aaron Ramsey’s injury record has prompted a club investigation. For now, the midfielder is just happy to be fit to face Anderlecht in the Champions League
    Comment: David Moyes' show of sensitivity thrown back in his face by former Manchester United manager Sir Alex Ferguson

    Moyes’ show of sensitivity thrown back in his face... by Ferguson

    Manchester United legend tramples on successor who resisted criticising his inheritance
    Two super-sized ships have cruised into British waters, but how big can these behemoths get?

    Super-sized ships: How big can they get?

    Two of the largest vessels in the world cruised into UK waters last week
    British doctors on brink of 'cure' for paralysis with spinal cord treatment

    British doctors on brink of cure for paralysis

    Sufferers can now be offered the possibility of cure thanks to a revolutionary implant of regenerative cells
    Ranked seventh in world’s best tourist cities - not London, or Edinburgh, but Salisbury

    Lonely Planet’s Best in Travel 2015

    UK city beats Vienna, Paris and New York to be ranked seventh in world’s best tourist destinations - but it's not London