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£520 NI 'stealth tax' if you earn £40,000
Jonathan Prynn and Joe Murphy13 Mar 2008
The Chancellor was today accused of inflicting a £520 National Insurance "stealth tax" on middle-class workers that will fall hardest on Londoners.
While it was not mentioned in Alistair Darling's Budget speech, the earnings ceiling for NI has been raised by £100 a week - many times the rate of inflation - to £770 a week. Analysts say this means workers earning around £40,000 will pay £520 a year more and will be among the big losers from the Budget.
The middle classes are already the subject of a tax blitz from Mr Darling, which he defended today saying increases on cars and drink were needed to cope with a "difficult period" for the economy.
The Chancellor claimed higher car taxes would merely help motorists decide what model to buy. And he argued that drinkers would not feel too much pain because wine prices in the shops were at a 10-year low.
"In relation to cars, what I'm trying to do is to enable people to make better choices. What I want to do is to enable people to buy the least polluting car of the type they want to buy." he said.
He added: "The reason I raised alcohol duties is that having looked it, it was the right thing to do and, along with other measures like closing tax loopholes, it also enabled me to do more for families with children and more for older people."
The tax rises will compound the woe inflicted on middle-income families by the higher NI contributions which will off-set most, if not all, of the gains from higher tax thresholds.
The change to the NI ceiling will be worth almost £2 billion a year in revenues to the Treasury. Critics said the rise in NI bills, combined with the lack of concessions on other taxes that fall hardest on the capital - such as residential-property stamp duty - meant Londoners would be providing an even higher proportion of the national tax harvest from April.
Mark Pragnell, managing director of the CEBR economic think-tank, said the NI changes were "a stealth tax" that had not been clearly disclosed in public.
He said: "The NI clawback was preannounced but it is very difficult to find exactly when. It will have a disproportionate impact in London because there are more people here earning over £40,000 a year."
Mr Darling has admitted the economy faces a highly uncertain year. "We are going into a difficult period," he said.
But, clashing with him on breakfast TV, shadow chancellor George Osborne accused the Chancellor of presiding over a massive economic mistake because he had been forced to raise taxes in a slowdown.
"He has left the country ill-prepared for a slowdown," said Mr Osborne. "In other countries there are big tax cuts for businesses, and big attempts to put money in the pockets of families. But in Britain there are tax increases on hard-working families and businesses. They are paying more for their drink, more for their cars. People are being kicked when they are down."
The NI hit comes ahead of a raft of other London household budget increases this spring including an average £35 a month rise in council tax bills, higher mortgage costs as cheap fixed rate deals come to an end, and spiralling energy bills.
Commentators said several other of Mr Darling's tax changes will be borne mainly by the middle classes. Jeremy Beadles, chief executive of the Wine and Spirit Association, said: "With other cost increases already coming through that means the £3.49 bottle is finished. By the time we get to 2012 the £4.49 bottle will be under threat and there will be very little less than £4.99."
Higher earners also face higher bills for their cars. Those who drive "Chelsea tractor" 4x4 vehicles and the most carbon emitting people carriers will be hit by the new £950 showroom tax and an annual road tax bill of £455.
Reader views (6)
Taxes on "Chelsea tractors" are absolutely right
- John Dickson, Manchester, UK, 18/03/2008 21:25
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Higher NI? The middle classes are the ones least likely to smoke/lead an unhealthy lifestyle/have private health insurance. Why should we foot the bill?
- G Rooke, Maida Vale, London, 13/03/2008 23:16
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Sly, just like his master. Robs us to line the pockets of his Labour cronies but hopes no-one will notice. No doubt all those self-serving Labour parasites at Westminster will award themselves an inflation busting pay rise to bury the NI increase.
Things can only get....
- Mark, Sidcup, 13/03/2008 22:08
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Why can't Mr Darling just crawl back into the hole he came from and stop ruining what is already a pretty poor excuse for a country!
- Matt, Reading, 13/03/2008 17:14
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A rubbish chancellor in a rubbish country-capable people should vote with their feet and leave. There are many countries around the world keen on skills that the City and Londoners have. The longer you stay the more you will be fleeced. Leave the country's coffers to be bled dry by immigration and welfare.
- Anna Moreno, London, UK, 13/03/2008 13:52
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Alistair Darling is clearly incompetent. By raising taxes when the economy is slipping into a severe recession will only make things much worse. He should resign now.
- Bethany Glover, London, E6, 13/03/2008 13:12
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