300,000 are forced into 40p tax band as limits are altered

MORE than 300,000 people will be pushed into the 40p tax band to help subsidise a tax cut for the lowest-paid workers.

While the personal allowance, or the amount that workers can earn before they have to pay income tax, is rising, those with higher incomes will not benefit significantly from the change because the threshold for the 40p tax band will be moved downwards to compensate.

At the moment workers must earn £42,475 before they start paying the higher 40 per cent rate of tax.

From April 2013 this will be reduced to £41,450, effectively cancelling out three-quarters of potential gain from the increased personal allowance.

The policy will also have the side effect of pushing over 300,000 people into the higher rate of tax for the first time.

“Rather than pass on the full benefit of the personal allowance to higher rate taxpayers, an equivalent amount of funding will be provided to assist in the fair implementation of child benefit reform,” the Treasury’s Budget red book explained.