Stealth tax on families pushes rate up to 65pc

FAMILIES have been hit by stealth tax rises which mean they hand over 65p in the pound on some of their earnings, experts have said.

Three-child families with one parent earning more than £50,000 a year are hit by the punishing rate because they lose child benefits as well as tipping over into a higher-tax bracket, according to the Institute For Fiscal Studies.

A family with three children gets child benefit equal to £2,500 a year to help cover costs, so long as neither parent earns over £50,000. But this payment is gradually reduced to nothing once one of the parents is earning more than £50,000.

A family where someone is paid £60,000 would lose the full £2,500 benefit, meaning they effectively pay a 25pc tax on £10,000 of their income. This cash would also be hit with the higher-rate income tax of 40pc – meaning they would pay 65pc in total.

The IFS slammed ministers for failing to fix the quirk, and also failing to increase tax thresholds in line with inflation.

This has meant the number of people paying higher taxes and losing key benefits has surged as their wages nudge them over the limits.

IFS director Paul Johnson said: ‘Recent governments have, rather stealthily, increased tax rates on high earners and the number of people facing high marginal rates of tax. If government thinks there is a case for more high-income people to pay more tax, it should be upfront about that view.’

In the year before Labour introduced a 50p tax rate for those earning over £150,000, a total of 319,000 people were hit.

Although the Tories later cut the rate to 45p, the £150,000 threshold has not moved. There are now 428,000 people with incomes above that level – but if the threshold had risen with inflation, it would have reached £180,000.