AN extra 1.3 million people on modest incomes, including around 100,000 Scots, face being dragged into a higher rate of tax by 2014, a leading think-tank warned last night.
The Institute for Fiscal Studies (IFS) estimated that a decision by Chancellor George Osborne to lower the threshold for the 40p tax rate would mean up to five million Britons – 500,000 in Scotland – would have to pay extra tax on their income within two years. At present, 3.7 million workers pay the higher rate.
As the wrangling over the Budget continued, the IFS explained the move to reduce the threshold to £41,450 would mean that 15% of all taxpayers would be forced to pay the higher rate, compared with 5% in the 1980s.
This is the third year in a row that Mr Osborne has reduced the 40p threshold.
In the think-tank's post-Budget analysis, IFS director Paul Johnson said: "This is part of a long-term trend towards the encroachment of 40% income tax on to people earning above-average but relatively modest salaries."
Meanwhile, David Cameron – who is in Scotland today for the Scottish Conservative Party conference – came under pressure to reveal if he would personally benefit from the cut in the highest 50p tax rate, which will fall to 45p next year and 40p in 2014.
Labour MPs demanded a list of Cabinet members who would benefit from the so-called "millionaires' Budget" after Mr Osborne revealed he did not pay the 50p rate, despite having a salary of £134,565, rental income from a property in London and a shareholding in his family's upmarket wallpaper firm.
Downing Street insisted tax arrangements were "a private matter between ministers and HM Revenue and Customs".
Mr Cameron's spokesman declined to say whether the PM – who declares rental income from a London property on top of his £142,500 salary – paid the top rate.
During a visit to Cumbria, the Prime Minister responded brusquely when challenged on the issue.
"My own salary is published. It's on the record," he declared, adding: "I cut it by 5%. I've frozen it for the whole of the parliament and I'm quite content to do that, but all my interests are declared and all of them are known about, thank you."
Ahead of his visit to Troon today, where the Scottish Tories will launch their Conservative Friends of the Union campaign, Mr Cameron also responded to the outcry over the so-called "granny tax".
Freezing age-related allowances for the over-65s will lead to around five million pensioners losing £3 billion over the next three years. Individual pensioners face losing more than £300 a year. Insisting the Budget was fair, the Prime Minister pointed out that "every granny" in the country would benefit from the largest-ever pension increase – £5.30 a week – from next month.
"At the same time, the Budget also delivered a tax cut for 24 million people in our country. We have now taken two million of the lowest-paid people out of tax altogether, so it's a good Budget for our economy and it's a fair Budget for all our people," he added.
However, Labour leader Ed Miliband responded by saying: "The Government is going to have to come clean about why they've done this because they cannot give an explanation about why they're funding a tax cut for millionaires and hitting
pensioners who've worked hard all their lives."
In a separate development, Danny Alexander, the Chief Secretary to the Treasury, signalled that the Liberal Democrats were looking to soften the blow on pensioners by making clear the tax-free allowance, which will be raised to £10,000 by 2014, could be £12,000 in the future. This would effectively remove the "granny tax".
In a Westminster briefing, the Highland MP said he wanted to link the allowance to the full-time salary of a worker on the minimum wage. Raising the threshold to the equivalent of £12,000 in today's money would mean nobody earning the statutory minimum would pay income tax.
Mr Alexander said: "I would like us to get to a position as a country where no-one has to pay tax unless they earn more than the minimum wage.
"I'm thinking about that as a key pledge for the Liberal Democrats at the next General Election."
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