Higher tax rate to affect 750,000 people

Posted on January 31st, 2011 | Categories - News

Average British households could be £200 a year worse off due to benefit cuts and tax changes.

IFS research has revealed that thousands of people will have to start paying more tax this April.

About 750,000 people will become higher-rate taxpayers in April due to the government tax shake up leaving them £200 a year worse off, according to the Institute of Fiscal Studies (IFS). The new system means that three quarters of a million Britons will have to begin paying the higher 40% income tax rate on their earnings from 5 April when the eligibility threshold falls from £37,400 to £35,001.

At the same time the level at which people start to pay tax will rise from £1000 to £7,475 a year. Both measures were designed to remove thousands of lower paid workers from the tax system.

A Treasury spokesman said: “The Government has had to make tough choices but has always been clear those with the broadest shoulders should carry the greatest burden”.

He added: “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”.

Gavin Kelly, of the Resolution Foundation thinktank, said: “Looking at these changes in the round, there is no doubt there is a group of working parents on wages of around £40,000 who will soon find that a pay rise leaves them little better off – or possibly even worse off”.