Middle and higher earners face paying hundreds of pounds more to the taxman because of a rise in national insurance and a freeze in the thresholds at which the basic and higher rates of income tax kick in.
As Labour struggles to fill a huge black hole in government finances, Alistair Darling revealed that from 2011 people would be stung by a one percentage point increase in national insurance. He had previously said that only a 0.5 percentage point rise would be necessary.
Many middle-income earners will also be dragged into the 40 per cent tax net after the Chancellor said he would freeze the higher-rate tax threshold. He also announced that there will be no increase in the personal allowance in April.
The national insurance increase will affect anyone who earns £20,000 or more — up to 20 million people, says PricewaterhouseCoopers. The damage will be offset for lower earners by an increase in the national insurance starting point.
James Dolan, of the accountant Grant Thornton, said: “These changes are set to yield the Treasury around £2.7 billion a year, equivalent to ½p on the basic rate of income tax.”
The standard rate of national insurance for employees will rise from 11 per cent to 12 per cent. Workers will be charged 2 per cent on all earnings above the upper limit.
From 2011, someone earning £30,000 will pay £87 more in national insurance. Those earning £100,000 will pay an extra £786. The rate for employers will also increase to 13.8 per cent, in a move which has been condemned as bad for business.
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