The start of this tax year has already earned itself a bad name amongst finance specialists.
High earners will be hit by tax changes today.
Changes to personal taxes that could shrink household income by £500 million this year have led economic experts to describe today as ‘Worse off Wednesday’.
According to analyst firm Capital Economics a further £1.8 billion will be lost to families through welfare cuts. The rising rate of inflation will also mean that real pay will be reduced by 1.5%.
VAT has already risen from 17.5% to 20%, the price of grocery shopping has increased and fuel expenses are surging.
Shadow Chancellor Ed Balls said it is a “black Wednesday for millions of families across Britain”, adding that “all this pain all in one go is deeply unfair”.
The personal tax allowance bracket for higher earners has been decreased from £43,875 to £42,475, which means an extra 750,000 will have to pay a 40% tax on their earnings. This group will see their child benefit frozen for the next three years until 2013 when they will no longer be eligible to receive it.
A 1p rise in National Insurance will also come into effect from today.
However, the personal tax allowance for basic rate taxpayers has increased from £6,475 to £7,475. This change will save about 23 billion people up to £170 each.
Mike Warburton, senior tax partner at accountants Grant Thornton, said: “Those on the lowest incomes will benefit most from the tax changes with those on middle incomes being squeezed. The hard fact is that we are all having to tighten our belts this year as we cope with the increase in VAT together with rising fuel and most other costs”.