Osborne's tax plans hit Middle England hardest

The upper middle classes will be the biggest losers from the tax and benefits reforms expected to be confirmed by George Osborne in his Budget next month – with families on about £50,000, often characterised as "Middle England", among the hardest hit. The typical loss for such households will be about £270 a month.

By contrast, poorer pensioners and families on average earnings may even see a modest benefit, according to research commissioned by The Independent from leading accounting firm Blick Rothenberg. The very richest will also lose out, but not to the same extent as upper-middle earners.

Claims by government ministers that their policies are "progressive" are challenged by the latest figures. As the Budget on 23 March approaches, the new data suggests that a family on about £50,000 will see a loss of £3,250 or 6.5 per cent – much more than any likely salary increase this year, and an even greater loss than the £2,300 faced by a family with an annual income of £280,000. Families in the £40,000 to £50,000 bracket will be particularly disadvantaged by a series of measures that appear to be aimed squarely at their living standards.

These include the reduction in the effective threshold for the 40 per net tax band from £43,875 to £42,475; the rise in national insurance contributions of 1 per cent and the extra 1 per cent imposed on those with incomes of more than £35,000; a sharper taper on tax credits; and the abolition from January 2013 of child benefit for households which include at least one higher rate tax payer.

This week the Institute for Fiscal Studies said 750,000 more taxpayers would be dragged into the 40p band. Yet while the super-rich also lose out, their share of the burden might have been much larger, but for a recent and little-noticed alteration in policy by the Coalition.

Although there is still a cap on the amount the very rich can claim in tax relief for the money they put into their pension schemes, detailed changes mean a slightly more generous treatment for most of those able to put aside £50,000 a year for their old age.

The relaxation of "anti-forestalling" measures imposed by Alistair Darling helps limit the damage done to the richest few – reforms that the Government's critics can portray as a "stealth tax cut" for the wealthy.

By contrast, a family on average earnings will see a small improvement, albeit just £26 a year, and a single pensioner with few savings subsisting on the state pension will be £161 a year better off, benefiting from the preservation of free travel concessions, winter fuel allowances, TV licence fee exemptions, and their versions of disability living allowance and housing benefit – exempted from the reforms Mr Osborne announced last year.

Some 500,000 of the very low paid – those with a taxable income of less than £7,475 – will be taken out of the income tax system altogether in a few weeks, helping to deliver a key Liberal Democrat pledge of taking the tax threshold to £10,000 before the next election.

Toby Ryland, a Blick Rothenberg tax partner said: "People who fall within the upper middle England category with average household income of around £50,000 will be significantly worse off from 6 April 2011. It's clear that the real losers are upper middle England, who are traditionally the supporters of the Conservatives and Liberal Democrats."

Thousands ignore warnings and file with minutes to go

Almost 20,000 taxpayers ignored Moira Stuart's stern warnings to file their tax returns early and waited until minutes before the deadline to complete their forms, writes Louise Begbie.

HM Revenue and Customs told The Independent that 19,500 people filed their tax returns online between 11pm and 11.59pm on 31 January – the final hour before the deadline.

Overall, 6.9 million people submitted online forms before the deadline this year, which accounted for 78 per cent of all of the returns for the 2009-10 tax year.

With no apparent problems, the HMRC self-assessment server was able to cope with the average 325 people a minute submitting their details electronically in the final hour.

An estimated 900,000 taxpayers missed the deadline, which at £100 a time could net about £90m in fines for the Treasury.

How will the Chancellor's new regime affect...

The upper-middle classes

Late-40s couple with two children, aged 16 and 10. Main earner is on £43,000 and hit by the lower 40 per cent threshold and higher national insurance charges. They have a company Ford Mondeo. Average spending habits, and thus vulnerable to the VAT rise. Around £25,000 in savings.

Net loss: -£3,249

The biggest loser from Coalition polices in absolute and relative terms. They lose their child benefit and tax credits, and are hit by higher income tax and national insurance as well as the VAT rise. Pay unlikely to increase.

The single pensioner

Aged 81, living alone with around £500 in the building society. Claiming housing and council tax benefit. No car. Income of £5,086.

Net gain: +£161

Ministers are courting the "grey vote", pledging to defend the winter fuel allowance and restore the link with earnings. But more older people are also being forced back into part-time work due to a reduction in their retirement income from underperforming stock markets, low interest rates and inflation. Although they spend less on VAT-rated goods, food and energy inflation has affected them disproportionately.

The average family

Young couple with two young children, aged 10 and 5. One spouse earns slightly above the average – about £27,000 a year. They have a small car, and enjoy the odd glass of wine at home. Have £1,000 in ISA savings.

Net gain: +£26

This couple benefit from the improvement to the child tax benefit announced by George Osborne, but lose out from cuts in tax credits. If they had a tracker mortgage, took advantage of the stamp-duty holiday to buy their first home and used the scrappage scheme to purchase their new hatchback, they will have benefited from policies that are disappearing.

The rich

In their 50s: Company director on £200,000 salary who maximised contributions to his pension pot. Large car on company scheme. Spouse earns £50,000. "Champagne" lifestyle.

Net loss: -£2,322

The VAT rise hits them badly, but they have the small compensation of a more generous treatment of their pension arrangements than under Labour. The 50 per cent top rate of tax last year had the most grievous impact and they lose child benefit soon. But company directors are skilled at getting pay rises.