Families will find themselves up to £1,500 worse off than when Labour came to power despite its boasts of a £20 billion tax giveaway in last week’s pre-budget report.

The Institute of Fiscal Studies (IFS) has scrutinised all tax reforms in Labour’s budgets — and concluded its changes have left the average family where both parents work £1,283 a year immediately worse off than in 1997.

The figures came after accountants branded last week’s statement as “illogical” as the chancellor embarked on a series of complex tax rises to claw back his 2.5 percentage-point reduction in Vat.

From April, the average dual-income family on £42,000 a year will be worse off than in 1997, despite the Vat cut plus an above-inflation increase in tax-free personal allowances. By 2011, when the full effects of the budget are felt, they will be £1,466 a year worse off because of a 0.5% rise in National Insurance contributions (Nics).

David Phillips of the IFS said: “Families where both parents work tend not to benefit from means-tested tax credits and have been hit by the abolition of the married couple’s allowance, mortgage interest relief, as well as the National Insurance increase in 2003 by 1% and again with the announced 0.5% rise from 2011.”

The IFS last looked at tax rises after the 2007 pre-budget report. Then it said the average household was 3.08% worse off than in the first year of Blair’s government. The updated numbers show that by 2011, the average household will be 3.52% worse off. This is even without taking into account the proposed new rate of tax at 45% for the 360,000 people on incomes above £150,000, or the clawback of the tax-free personal allowance above £100,000.

Phillips said: “The government has increased its tax take and it has used that to fund increased spending on public services — it has increased benefits but not by as much as tax.”

The highest-earning 10% of households — those with incomes over £76,000 — will be 6.43% or £4,892 a year worse off in 2011, compared with 1997. From April they will be 4.31% or £3,280 worse off.

The IFS took into account all direct taxes affecting households including income-tax rates, Nics and indirect taxes.

Moves to claw back the Vat cut include:

Freezing the threshold for 40% tax

Buried in the pre-budget papers was the announcement that the government will freeze the threshold at which the 40% tax rate applies from 2011. From 2009 it will be £37,400. It is thought the measure will bring an extra 100,000 people into the 40% tax band, boosting revenue by £180m.

Attack on trusts

Thousands of trusts set up for grandchildren will pay the new 45% top rate — irrespective of their income. The rate on discretionary trusts — commonly used to pass on assets to heirs — will rise from 40% to 45% from 2011, in line with earnings above £150,000. However, it will apply even if the trust income is below £150,000.

Christopher Groves of law firm Withers, said: “This will not affect the super-wealthy who pay 45% tax, but those in middle England who want to plan their children’s inheritance in a sensible fashion.”

Doubling the cost of the pension buyback for women

Many women who gave up work to raise children miss out on the full pension — £90.70 a week, rising to £95.25 in April — as they have not paid enough Nics. They can buy extra years but the cost will rise from £421 to £627 from April — 49% more.

“The government has conned millions of older women by telling them they can buy back their lost pension, but failing to tell them exactly how much it is going to cost,” said Dot Gibson, vice-president of the National Pensioners Convention.

Tax rates as high as 60%

From 2011, the government will claw back the personal allowance (going up to £6,475) at a rate of £2 for every £1 you earn above £100,000, giving some people tax rates as high as 60%. If you earned £105,000, for example, you would lose £2,500 of your allowance and would pay 40% tax on another £2,500 of income, that is £1,000. You’ve already paid 40% tax on the £5,000 above £100,000 — or £2,000. Therefore, you will have to pay £3,000 for £5,000 of income, a tax rate of 60%.