Brown's raid on wallets

With classic sleight of hand, Gordon Brown effectively introduced a one per cent super tax without anybody realising until well after he sat down with the cheers of Labour MPs ringing in his ears.

The scale of the extra payments, which will hit higher-income earners by far the hardest, appeared to have passed Iain Duncan Smith by. The Tory leader barely referred to them in his Budget response.

The full implication only became clear on the closest inspection of Mr Brown's speech. He told MPs the effect of his tax changes would see someone on £10,700 a year paying £1.65 a week more, those on £21,410 paying £3.70 a week extra, and people earning £32,100 an extra £5.75 - - all from next April.

He gave no details of the effect on those earning more than this. When Treasury officials were asked what the extra payments would be for those earning £40,000 a year or more, they said figures had not been calculated.

Mr Brown also appeared to suggest that the current upper earnings limit, above which no National Insurance is payable, would continue to apply, after being increased only in line with inflation. Initial reaction was that nobody would pay more than £5.75 extra a week.

In fact only a close reading of his exact words showed that the one per cent extra would apply to earnings above the ceiling. He said: "Save for the one per cent contribution, the ceiling of £30,420 remains in place and will be indexed in line with inflation to £30,940."

It was left to tax experts to do the sums - working out that those on £50,000 a year would be £9.72 worse off a week, rising to £10.65 for people earning £60,000 and carrying on up the scale, with £100,000-a-year earners clobbered by an extra £19.35 a week. Employers pay at the same rate as their employees, leaving a couple with a nanny to look after their children paying extra cash twice over.

Accountants pointed to the abolition of the ceiling and said Mr Brown had left the door open to further increases when he needed more cash. "It doesn't have to stay at one per cent, it could go up to two or three per cent in future years. We are at the thin end of the wedge," said Frank Haskew, senior manager at the tax faculty of the Institute of Chartered Accountants.

The Tories went on the attack with shadow chancellor Michael Howard claiming: "This is sleight of hand all too typical of a Chancellor who hides the bad news in his Budget small print hoping nobody will notice. It will cost the taxpayer billions."

Not all the cash raised would go on the NHS, the Opposition claimed. Much of it would go to fund the Chancellor's complex child tax credit which would have the effect of dragging middle-income earners into the benefits system for the first time. Experts also pointed out that one of the biggest extra National Insurance payments would in fact be made by the NHS - as Europe's biggest employer with about one million workers.

It was calculated that, for all the extra billions it was being claimed were being pumped into health, the NHS would have to pay back up to £400 million a year to the Treasury in higher National Insurance charges for employers.

Schools, local councils and other key public-service sectors would also be hit by higher contributions for employers from 2003-04. The Treasury admitted it had built nothing into the Budget to protect the public services from the increased charges.

During last year's election campaign-Labour promised not to increase rates of income tax - - but refused to rule out a raid on National Insurance contributions.

Then, the Tories accused Mr Brown of preparing to do precisely what he did yesterday, but the Opposition made no headway against a rampant governing party which won a second successive landslide.

What is clear now is that the battle lines for the next election have been drawn and that, for the first time in a decade, Labour is ready to campaign on a platform of higher direct taxes.

Mr Brown deliberately delayed the start of his new NI regime for a year, gambling on improvements in key public services - particularly in schools and hospitals - beginning to filter through before taxpayers feel the effect of the extra charges.

However, he has lit the fuse on a tax timebomb which could, if things go wrong, explode in his face, doing mortal damage both to Labour and to his own political ambition.