5m will be paying higher-rate tax: Record number snared in 40% trap within next three years
Hundreds of thousands of families who do not consider themselves wealthy are being pushed into tax band which they thought was for the well-off
Worker currently qualifies for 40p rate when their salary is 42,475Salary threshold will be lowered next year to 41,450
23:50 GMT, 6 December 2012
A record five million workers will be paying higher-rate tax by 2015 – half a million more than the Treasury has predicted.
The true scale of the 40 per cent tax trap was revealed yesterday by Britain’s leading economic forecaster.
A worker currently qualifies for the 40p rate when their salary is 42,475 – but in a break with tradition the salary threshold will be lowered next year to 41,450.
5m workers to pay higher-rate tax: Hundreds of thousands of families who do not consider themselves wealthy are being pushed into a tax band which they thought was reserved for the well-off
George Osborne, pictured giving his statement yesterday, decided to abandon the usual approach of increasing the starting salary at which higher-rate tax must be paid by inflation every year
In 2014/15, it will increase by just one per cent to 41,865 and again in 2015/16 to 42,285 – still a level lower than today’s.
As a result, hundreds of thousands of families who do not consider themselves wealthy are being pushed into a tax band which they thought was reserved for the well-off.
The Institute for Fiscal Studies said an extra one million will become higher rate-taxpayers over the next three years.
The situation has been triggered by George Osborne’s decision to abandon the usual approach of increasing the starting salary at which higher-rate tax must be paid by inflation every year. Instead it is to increase by just one per cent a year.
This means the starting salary will still be below its current level of 42,475 in 2016, trapping ordinary workers from teachers to senior nurses, middle managers to legal secretaries.
Yesterday Paul Johnson, director of the IFS, said: ‘We estimate that by 2015 there will be one million more higher-rate taxpayers than there are today, taking the number to nearly five million, double the number at the end of the 1990s.
‘The higher-rate is no longer something faced only by the highly paid few.’
Matthew Sinclair, chief executive of the campaign group, the Taxpayers’ Alliance, said: ‘The picture is dismal for higher-rate taxpayers.’
The Treasury’s own forecast, released on Wednesday, claimed that because the point at which workers start paying higher-rate tax is to increase by one per cent for the next two years ‘around 400,000 more higher rate taxpayers’ will be created by 2015/2016.
Around 800,000 extra hard-working people have already been caught in the higher-rate tax trap since David Cameron entered Downing Street.
Official figures, from HM Revenue and Customs, show there were three million higher-rate taxpayers when the Coalition came to power in May 2010.
Today there are 3.8million, an increase of 800,000 people, who include families struggling to pay a large mortgage, record fuel prices and crippling energy bills.
On top of that, families where one earner is paid more than 50,000 will lose part or all of their child benefit next year.
The Taxpayers’ Alliance analysis shows the starting salary for higher-rate tax would currently be 63,777, rather than 42,475, if it had been ‘uprated’ each year by earnings, not inflation.
Mr Sinclair said the current threshold for higher-rate tax is ‘a very moderate income’ for a family with young children, particularly in more expensive parts of the country.
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TORY MPs STILL LACKING COMPASSION SAYS CLEGG
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'Nasty party': Nick Clegg accused Tory MPs of lacking compassion
Nick Clegg revived memories of the Conservatives as ‘the nasty party’ as he accused Tory MPs of lacking compassion.
In an interview with a Liberal Democrat magazine Ad Lib, Mr Clegg said he was involved in ‘bare knuckle’ fights with his Coalition partner.
The Lib Dem leader vowed to keep the Coalition government in the centre ground and see off any pressure to wrench it to the Right.
The Deputy Prime Minister said: ‘The Liberal Democrats entered the Coalition with a modernising Conservative Party.
‘They said they had changed, that they had become compassionate and modern.
‘What’s become obvious is that large swathes of the [Conservative] parliamentary party don’t share that agenda. We have to yank them back to the centre.’
The Tories were characterised as the nasty party when they were in opposition by one of their senior MPs, Theresa May, who is now the Home Secretary.
She drew the ire of Tory traditionalists when she urged the party to modernise and show it was more in touch with modern Britain.
In remarks that reprised that charge, Mr Clegg suggested that the Conservatives were more ‘antagonistic’ while for Lib Dem MPs, ‘the idea of give and take comes naturally to us’.
For the Tories, he said, ‘the very idea of a Coalition is unbearable for them.’
He said he often got up at Deputy Prime Minister’s Questions to ‘see backbenchers who do a jolly good impression of being antagonistic to the Coalition of which they’re a part.’