Return of Gordon Brown's stealth tax as 'thousands more face 40% increase'

Alistair Darling

Alistair Darling is preparing a 'soak the rich' Pre-Budget Report

Fears are growing that 70,000 more Britons face paying the top rate of income tax under plans from Alistair Darling.

The Chancellor will trigger the increase by freezing personal allowances for taxpayers in his Pre-Budget Report on Wednesday, say accountants.

It is also thought that the threshold for higher-rate income tax will be held at the current level.

Although ministers may justify the freeze by citing falling inflation, the plans mean those workers earning around £43,000 who do get pay rises would end up paying much of it to the Government.

Experts say freezing the allowances would be a 'stealth tax' because UK earnings rose 1.2 per cent in the year to September according to the Office for National Statistics.

The personal allowance is usually increased every year, meaning workers can earn a little extra money before paying more to the Inland Revenue.

But the desperate state of the nation's finances means it is likely to remain at £6,475 for under-65s for the next year.

To make matters worse, the level at which the top rate of tax – 40 per cent – must be paid is also likely to be held at £37,400. Anybody earning £43,875 or more – the personal threshold plus the current threshold – is a higher-rate taxpayer.

Mike Warburton, senior tax partner at accountants Grant Thornton, said such a move would hit people who do not consider themselves rich.

He said: 'It is not so much about bankers and their bonuses because their earnings are far above the level that they worry too much about the personal allowance. It is about people on middle incomes, doing jobs such as middle managers, who will be affected.

'It is the old stealth tax which Gordon Brown was a past master of.'

The Treasury is likely to hide behind the fact that the personal allowance is usually linked to the retail prices index measure of inflation for the previous September.

It was down 1.4 per cent last year, which experts say will be used to argue that a freeze is better than a cut.

But Matthew Elliott, chief executive of the Tax Payers' Alliance, said: 'It is disgraceful that despite all their talk of helping people in the recession, the Government are planning to squeeze taxpayers by stealth.

'Instead of cooking up technical tricks to hammer innocent taxpayers, the Treasury should be focusing on how to reduce spending. Hard-working people deserve help, not even more punishment.'

The number of higher-rate taxpayers has fallen dramatically over the past two years as workers have either lost their jobs, been forced to accept a pay cut or to work part-time.

As a result, the number of top-rate taxpayers, which peaked at 3.9million in the 2007/08 tax year, has dropped to 2.9million.

This has lead to a dramatic fall in income tax receipts, which the Government urgently needs to recover. It is not the first time that Labour has resorted to freezing personal allowances as a money-spinning Budget trick.

Between April 2002 and April 2004, the personal allowance was stuck at £4,615. But in a welcome move, the personal allowance is unlikely to be frozen for older people.

For people aged 65-74, it is currently £9,490 and for people aged 75 and over, it is 9,640.

In the 2007 Budget, Labour promised the personal allowance would be increased to £10,000 by 2011 for those aged over 75.

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