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Middle classes: ‘Stealth tax’ policy will drag 400,000 earners into higher rate

Autumn Statement

Middle England faces a new “stealth tax” as about 400,000 more people are dragged into the higher rate of income tax by 2015.

The threshold for the 40p tax rate will go up by 1 per cent in each of the next two years, taking it from £41,450 to £41,865 in 2014 and to £42,285 in 2015.

Because inflation is higher than the increases, about 400,000 more middle-earners will pay at least some of their income at the higher level.

The Chancellor told the Commons that the move would raise an extra £1bn a year for the Treasury by 2015. His decision risks alienating some natural Conservatives who do not regard themselves as generously paid. Among those who could be affected by the move are senior nurses, experienced teachers and police officers.

It comes as more than a million families with a parent earning more than £50,000 a year face losing all or part of their child benefit from next month.

Cormac Marum, a tax adviser at accountants Harwood Hutton, said: “This is effectively a stealth tax by George Osborne in the Autumn Statement. It will be perceived as another blow to people in Middle England who feel they struggle hard to get by.”

Currently some 25.5 million people (about 86 per cent of workers) pay tax at the basic 20p rate of tax. About 3.8 million people pay 40 per cent tax on some of their income – a figure that will rise to 4.2 million by 2015 and is more than double the number in the late 1990s. Just over 300,000 pay the top rate of tax – which will be reduced from 50p to 45p in April – because they earn more than £150,000.

Some of the impact of the move on higher rate tax will be offset by an increase in personal tax allowances to £9,440 in April, which is £235 more than previously announced and will put £267 extra in pay packets.

The Treasury estimated that higher-rate taxpayers would be £117 a year worse off by 2015 as a result of the combined effect of the moves.

Mr Osborne has always argued that all sections of society need to share the pain of his austerity measures as he repeats the mantra that “we’re all in this together”.

But his Tory critics counter that the extra taxes faced by middle-income families is a burden on the “strivers” that David Cameron says he wants government policies to help.

They say the move to pare back child benefits, which will raise some £1.7bn to £2.5bn for the Treasury, hits exactly that group and have urged Mr Osborne to delay, or at least cancel, the plan.

Rachel Reeves MP, the shadow Chief Secretary to the Treasury, said: “Millions of struggling families on middle and modest incomes are paying the price for this government’s economic failure.”

She added: “How can this government claim we are all in this together when working families, striving to do their best, are being singled out?”