Pay rises being outstripped by tax rises, says UHY

Workers are seeing their wages eaten away by income tax because of the Government’s failure to move up tax thresholds in line with pay rises, according to data from Birmingham accountants at UHY Hacker Young.

The firm has obtained statistics from HM Revenue & Customs showing that wages in the city have been significantly outstripped by the rise in tax since 2004.

And local taxpayers will be keeping a close eye on the Budget today to see what changes the Chancellor will be making.

Average income in Birmingham rose 16 per cent per taxpayer over the four years to 2008, but this was outpaced by income tax which rose 19.2 per cent.

Birmingham residents pay an average of £3,540 each year in income tax and earn an average of £21,800 per year.

Malcolm Winston, a partner at UHY Hacker Young in Birmingham, said: “Income tax is rising faster for Birmingham’s taxpayers than their wages. They are worse off than they should be, because income tax thresholds have not kept pace with salaries, resulting in a greater proportion of taxpayers’ incomes being paid out as tax.

“The effect of this mis-match is that the highest tax band now applies to an increasing proportion of wage earners, and this has acted as a stealth tax. Many middle wage earners in Birmingham, with relatively modest lifestyles, are now paying income tax at 40 per cent.

“In effect, government revenue from income tax has increased disproportionately. The Government needs to raise the higher rate tax band in line with earnings instead of sitting back while those on relatively modest incomes get hit by a tax intended to target the rich.”

The data showed that Birmingham residents earn £2,492 less (10.2 per cent less) than the national average income, which is £24,292.

Mr Winston added: “Taxpayers in Birmingham already earn less than the UK average income but now, at this difficult time, they are being forced to suffer from the value of their wages being eroded by income tax.”

Taxpayers in St Albans pay the highest average income tax of all the Top 100 UK towns and cities. Residents paid an average of £10,500 per taxpayer in the last tax year and each earns an average of £43,500, the highest income out of the UK’s Top 100 UK Towns and Cities.

London is fifth in the league table with an average income of £34,700 and an average income tax burden of £7,740.