Six million hit by stealth tax raid on wages

Middle earners will lose £500 a year

MIDDLE earners are set to lose nearly £500 a year under a tax raid being ‘smuggled’ in by George Osborne.

More than 6million workers across the UK earning £40,000 will lose around £40 a month under reforms announced three years ago that only come into force now.

The move will net the Treasury £5.5billion a year because the Government is replacing the second state pension (Serps) with so-called single-tier pensions.

Contributions f or this will automatically be taxed at a higher National Insurance (NI) rate because people can no longer opt out of the second state pension.

Those who are most likely to be hit are employees who pay into a final salary pension scheme, and experts estimate that around 1.5million workers in the private sector and 5million public sector employees will be affected.

Private sector employers could be forced to close their schemes due to the extra £1.2billion in costs imposed on them by the policy, according to the Times.

Steve Webb, the former Lib Dem pensions minister who is now director of policy at financial services firm Royal London, said: ‘I think the Chancellor had hoped that no one would notice this rather large tax increase smuggled out in advance as it was some years ago.’

But Paul Johnson, director of the Institute for Fiscal Studies, said: ‘Members of final salary occupational pension schemes and their employers will now be paying the same NI contributions as the rest of us.

‘Since they will be building up just the same state pension rights this can only be right.’

The revelation comes just days after it emerged that middleclass Scots face a tax double

‘Hoped no one would notice’

whammy, with Mr Osborne accused of plotting a separate stealth raid on pay packets.

More than half-a-million workers across the entire UK will miss out on the full benefit of the Chancellor’s t ax giveaway because of a hike in NI contributions. But Scots are already set to lose out because First Minister Nicola Sturgeon has vowed to largely reverse Mr Osborne’s tax cuts when she seizes new income tax powers in 2017.

That means some middleincome Scots will have to pay additional NI contributions, as well as handing over hundreds of pounds more in tax than people in England on the same salary.

Pensions and National Insurance are both policy areas reserved to Westminster, while income tax will be fully devolved next year.

Mr Osborne’s headli ne - grabbing tax break will see the middle 40p threshold increased from £43,000 to £45,000 from April 2017 in England.

But Miss Sturgeon will only put the salary threshold up to £43,387 next April, meaning Scots earning £45,000 or more will be £323 a year worse off compared to their counterparts in England, Wales or Northern Ireland.

The SNP expect the move to raise £1.2billion over the course of the next parliament.

Separately, the starting point for the 2 per cent rate on NI will rise to £43,000 this April and hidden away in the Budget documents are proposals to raise it again in line with the income tax threshold in 2017.

NI is paid at a rate of 12 per cent on earnings between £8,060 and £42,380. Above this, it is only a rate of 2 per cent. Under the proposals, some workers face paying NI at 12 per cent on a bigger chunk of their earnings.

An SNP spokesman said: ‘ No one will see their tax bill increase as a result of our proposals. Our plans for income tax are fair, balanced and progressive.’