The Budget: Widening of bands to be offset by bigger bills later: Personal Taxes

Taxpayers who benefit from the widening of the 20 per cent income tax band next month will have to face a bigger National Insurance bill a year later.

All taxpayers will benefit from the widening of the lowest band from the the first pounds 2,000 to pounds 2,500 of taxable income in 1993/4 - a boost of pounds 25 a year to those who can make full use of the band. The 20 per cent band is set to advance by a further pounds 500 in the following year.

However, the gains will be offset by reducing tax relief for mortgages and the married couples allowance from the highest marginal rate to 20 per cent. The Chancellor also froze personal allowances and the level at which higher-rate tax takes effect.

The rise in National Insurance contributions (Nics) for both the employed and the self-employed from April 1994 is part of the Chancellor's strategy to cut the deficit in the National Insurance Fund, which has ballooned as a result of the recession.

Chris Pond, director of the Low Pay Unit, attacked the change as an attack on the low-paid. Contributions would still be a much greater burden on low earners than on the well-paid, he said. Mr Pond wanted to see Nics radically reformed, preferably with scrapping of the ceiling on earnings above which employees pay no NI contributions. In the 1993/4 tax year this limit will be pounds 21,840.

For employees paying Class 1 contributions, the contribution rate for the upper band of earnings will rise from 9 to 10 per cent. There will be no change in the 2 per cent rate on the lower band of earnings of up to pounds 56 a week. The Nic bill for someone earning pounds 21,840 in the coming year would be pounds 33.88 a week. Assuming no increase in the upper and lower earnings limits in the 1994/5 year, this bill would rise by pounds 3.64 to pounds 37.52 a week. The earnings limits are normally increased in line with inflation.

The self-employed face an increase in Class 4 contributions from 6.3 to 7.3 per cent in the 1994/5 year. These rates apply on profits between the lower and upper profits limits. In the coming year these will be pounds 6,340 and pounds 21,840 respectively. Assuming no change, the bill for the self-employed person would rise by up to pounds 150 a year.

Taxpayers earning enough to pay income tax at 25 and 40 per cent have been hit on two fronts. The freezing of personal and married couples allowances - at pounds 3,445 and pounds 1,720 respectively - gives them no allowance against the effects of inflation. From April 1994, they will be affected by the measures restricting relief on mortgage interest and the married allowance to the lowest rate. A taxpayer with a mortgage of pounds 30,000 or more will be pounds 120 a year, or pounds 10 a month worse off with interest rates at 8 per cent. The change on the married allowance will cost a 25 per cent taxpayer up to pounds 86 a year and a 40 per cent payer pounds 344.

The Chancellor said: 'There is no good reason why an allowance intended to recognise the responsibilities of marriage should give least to those on low incomes and most to those right at the top of the income scale. ' The restriction will also apply to the allowances for single parents, widows and maintenance payments.

Elderly people are entitled to a higher level of married couple's allowance and to mitigate the loss, they will get an extra pounds 200. This will make those using all the 20 per cent band pounds 40 a year better off, on top of the gains from extending the 20 per cent band. Wealthy pensioners whose income takes them well into higher tax rates will be pounds 428 a year worse off. The break-even point comes at incomes of around pounds 10,000.

----------------------------------------------------------------- SINGLE PERSON UNDER 65 (OR MARRIED UNDER 65 WITH NO MCA) ----------------------------------------------------------------- All figures in pounds 1992/93 1993/94 Gross Monthly Monthly Net Monthly Monthly Net Monthly annual tax NIC monthly tax NIC monthly change salary salary salary ----------------------------------------------------------------- 3,000 0.00 6.12 243.88 0.00 5.51 244.49 +0.61 5,000 25.92 21.12 369.63 25.92 20.51 370.24 +0.61 7,000 65.73 36.12 481.48 63.65 35.51 484.17 +2.69 9,000 107.40 51.12 591.48 105.31 50.51 594.17 +2.69 11,000 149.06 66.12 701.48 146.98 65.51 704.17 +2.69 13,000 190.73 81.12 811.48 188.65 80.51 814.17 +2.69 15,000 232.40 96.12 921.48 230.31 95.51 924.17 +2.69 20,000 336.56 133.62 1,196.48 334.48 133.01 1,199.17 +2.69 22,000 378.23 141.57 1,313.53 376.15 146.81 1,310.37 -3.16 25,000 440.73 141.57 1,501.03 438.65 146.81 1,497.87 -3.16 30,000 580.58 141.57 1,777.85 578.50 146.81 1,774.69 -3.16 35,000 747.25 141.57 2,027.85 745.17 146.81 2,024.69 -3.16 40,000 913.92 141.57 2,277.85 911.83 146.81 2,274.69 -3.16 50,000 1,247.25 141.57 2,777.85 1,245.17 146.81 2,774.69 -3.16 60,000 1,580.58 141.57 3,277.85 1,578.50 146.81 3,274.69 -3.16 75,000 2,080.58 141.57 4,027.85 2,078.50 146.81 4,024.69 -3.16 100,000 2,913.92 141.57 5,277.85 2,911.83 146.81 5,274.69 -3.16 -----------------------------------------------------------------

----------------------------------------------------------------- MARRIED PERSON UNDER 65 WITH FULL MCA (OR SINGLE PARENT) ----------------------------------------------------------------- All figures in pounds 1992/93 1993/94 Gross Monthly Monthly Net Monthly Monthly Net Monthly annual tax NIC monthly tax NIC monthly change salary salary salary ----------------------------------------------------------------- 3,000 0.00 06.12 243.88 0.00 5.51 244.49 +0.16 5,000 0.00 21.12 395.55 0.00 20.51 396.15 +0.61 7,000 30.58 36.12 516.63 30.58 35.51 517.24 +0.61 9,000 71.56 51.12 627.32 69.48 50.51 630.01 +2.69 11,000 113.23 66.12 737.32 111.15 65.51 740.01 +2.69 13,000 154.90 81.12 847.32 152.81 80.51 850.01 +2.69 15,000 196.56 96.12 957.32 194.48 95.51 960.01 +2.69 20,000 300.73 133.62 1,232.32 298.65 133.01 1,235.01 +2.69 22,000 342.40 141.57 1,349.37 340.31 146.81 1,346.21 -3.16 25,000 404.90 141.57 1,536.87 402.81 146.81 1,533.71 -3.16 30,000 523.25 141.57 1,835.18 521.17 146.81 1,832.02 -3.16 35,000 689.92 141.57 2,085.18 687.83 146.81 2,082.02 -3.16 40,000 856.58 141.57 2,335.18 854.50 146.81 2,332.02 -3.16 50,000 1,189.92 141.57 2,835.18 1,187.83 146.81 2,832.02 -3.16 60,000 1,523.25 141.57 3,335.18 1,521.17 146.81 3,332.02 -3.16 75,000 2,023.25 141.57 4,085.18 2,021.17 146.81 4,082.02 -3.16 100,000 2,856.58 141.57 5,335.18 2,854.50 146.81 5,332.02 -3.16 -----------------------------------------------------------------

----------------------------------------------------------------- MARRIED PERSON AGED 65 TO 74 ----------------------------------------------------------------- All figures in pounds 1992/93 1993/94 Gross Monthly Net Monthly Net Monthly annual tax monthly tax monthly change salary salary salary ----------------------------------------------------------------- 3,000 0.00 250.00 0.00 250.00 0 5,000 0.00 416.67 0.00 416.67 0 7,000 5.58 577.75 5.58 577.75 0 9,000 40.31 709.69 38.92 711.08 +1.40 11,000 81.98 834.69 79.90 836.77 +2.08 13,000 123.65 959.69 121.56 961.77 +2.08 15,000 173.65 1,076.35 171.56 1,078.44 +2.08 20,000 300.73 1,365.94 298.65 1,368.02 +2.08 22,000 342.40 1,490.94 340.31 1,493.02 +2.08 25,000 404.90 1,678.44 402.81 1,680.52 +2.08 30,000 523.25 1,976.75 521.17 1,978.83 +2.08 35,000 689.92 2,226.75 687.83 2,228.83 +2.08 40,000 856.58 2,476.75 854.50 2,478.83 +2.08 50,000 1,189.92 2,976.75 1,187.83 2,978.83 +2.08 60,000 1,523.25 3,476.75 1,521.17 3,478.83 +2.08 75,000 2,023.25 4,226.75 2,021.17 4,228.83 +2.08 100,000 2,856.58 5,476.75 2,854.50 5,478.83 +2.08 -----------------------------------------------------------------

----------------------------------------------------------------- SINGLE PERSON OVER 75 (OR MARRIED OVER 75 WITH NO MCA) ----------------------------------------------------------------- All figures in pounds 1992/93 1993/94 Gross Monthly Net Monthly Net Monthly annual tax monthly tax monthly change salary salary salary ----------------------------------------------------------------- 3,000 0.00 250.00 0.00 250.00 0 5,000 10.50 406.17 10.50 406.17 0 7,000 46.46 536.88 44.38 538.96 +2.08 9,000 88.13 661.88 86.04 663.96 +2.08 11,000 129.79 786.88 127.71 788.96 +2.08 13,000 171.46 911.88 169.38 913.96 +2.08 15,000 221.46 1,028.54 219.38 1,030.63 +2.08 20,000 336.56 1,330.10 334.48 1,332.19 +2.08 22,000 378.23 1,455.10 376.15 1,457.19 +2.08 25,000 440.73 1,642.60 438.65 1,644.69 +2.08 30,000 580.58 1,919.42 578.50 1,921.50 +2.08 35,000 747.25 2,169.42 745.17 2,171.50 +2.08 40,000 913.92 2,419.42 911.83 2,421.50 +2.08 50,000 1,247.25 2,919.42 1,245.17 2,921.50 +2.08 60,000 1,580.58 3,419.42 1,578.50 3,421.50 +2.08 75,000 2,080.58 4,169.42 2,078.50 4,171.50 +2.08 100,000 2,913.92 5,419.42 2,911.83 5,421.50 +2.08 -----------------------------------------------------------------

Additional research was provided by Malcolm Ridley, Richard Collier-Keywood and Stephen Wright of Coopers & Lybrand