Half your income goes in taxes

MIDDLE income earners are paying up to 50p in every pound back to the taxman. The soaring burden on families from Labour's stealth tax rises is revealed in a report by a leading firm of independent accountants.

It says that the average higher-rate taxpayer, earning £40,000 a year in 1997, paid 35p in the pound tax. That person could expect today to be earning £50,400 - of which half would go back into the Treasury coffers.

The startling figures are revealed in an analysis from Smith & Williamson, an independent financial services group with offices around the country and more than 1,000 employees.

Labour went into the 1997 and 2001 General Elections pledging not to increase the standard or top rates of income tax.

But while the party has kept its promise, Chancellor Gordon Brown has devised dozens of alternative money-raising schemes.

The Tories have nicknamed him the 'clickety click' Chancellor over his 66 stealth tax rises. The most notable is a hike of 10% in National Insurance contributions to raise money for the NHS.

But the report from Smith & Williamson also calculates the impact of increases in petrol duty, stamp duty, VAT, alcohol and cigarette duty and council tax.

With the soaring value of property, stamp duty liability has vastly increased since Labour came to power. And council tax has risen by 70%.

Brown has refused to raise income tax thresholds in line with increasing earnings. This has dragged 1.5m more people into the higher tax rate - paid above earnings of £31,400 - since 1997, meaning that 2.8m pay 40% tax.

The accountants assumed the 'average' higher-rate tax payer was a man under 65, with two children and a non- earning spouse, living in Guildford, Surrey. He had bought a new house in the last year, having been at his previous home for seven years, moving from council tax Band D to Band F.

They assumed he owned a Ford Mondeo and drove 8,000 miles a year. Average fuel and grocery costs came from the Government's expenditure and food survey.

The analysis showed that the total paid in tax had increased from £17,048 in 1997 to £25,837 in 2004 - an increase from 35p to 50p in the pound.

Someone on £50,000 in 1997 would have paid 36p in the pound then, rising by a third to 48p now, while a £25,000 earner's tax bill rose from 33p in the pound to 38p.

Formed in 1881, Smith & Williamson has no political affiliations and offers accountancy advice to private clients and large and small firms.

Its national head of tax, Francesca Lagerberg, said: 'We weren't seeking to make political capital out of this and we didn't start off with any preconceptions. People say taxes have gone up, but we wanted to look at how the situation really had changed since 1997.

'We tried to look at the real Mr Average - someone with two kids, who drives an ordinary car, likes a drink on a Friday night but who doesn't really do anything out of the ordinary.

'I have to say we were quite surprised by what we found. It's more than most people would imagine. It is higher-rate taxpayers who have seen the greatest rise in their tax bills.'

Shadow Chancellor Oliver Letwin said: 'These are truly terrifying figures. They show the true extent to which Gordon Brown's fat Government has been raiding people's pockets.'

The Treasury dismissed the figures as 'wrong'. 'I'm glad they aren't my accountants,' said a spokesman. 'There are a whole range of technical flaws in the way they have put this calculation together.

'The most obvious is on stamp duty, where they haven't spread it out over seven years. That assumption accounts for 40% to 70% of their estimated increase.'

He insisted it was 'notoriously difficult' to measure the burden of indirect taxes on different types of households and there were no reliable figures available.

'But it is possible to provide a robust measure for the burden of personal taxes,' he added.

'The average personal tax burden on a single-earner family on average earnings with two children is around 20% lower this year than 1997 when it stood at 21%. It is lower than any previous year since 1979/80.

'This year, the average household is £850 a year better off in real terms under the present tax and benefits measures this Government has introduced since 1997. The average family with children will be £1,350 better off.'

At least one in three households should expect to pay more under the Government's planned council tax revaluation, due to start next year across England, the Tories warned.

In Wales, where a revaluation is under way, the Welsh Executive has revealed that a third of households will move up at least one council tax band - meaning soaring bills for many.

Tory local government spokesman Caroline Spelman said: 'It is clear that Labour are planning third-term tax rises, with stealth changes to council tax one of their preferred ways of squeezing hard-working families and pensioners.'

Revaluations would be in addition to any Government plans to introduce new council tax bands after the General Election, she added.