ANYONE earning over £20,000 will be worse off in 2011 if Labour wins the next election, after the government’s pre-budget report last week unveiled tax rises in three years to pay for its Vat giveaway.

High-income earners will bear the brunt of the changes, which include bringing in a new 45% rate of tax for those earning more than £150,000 and clawing back personal allowances when your income rises above £100,000.

Someone earning £175,000 would be £2,035 worse off in 2011 compared with the previous year and £4,254 worse off than today, according to figures from the accountant Blick Rothenberg.

Middle-income earners will also be hit by the 0.5% hike in National Insurance contributions (Nics) from 2011. For example, someone earning £50,000 would be £160 worse off in 2011 than in 2010.

The government claimed nobody earning less than £40,000 would be worse off in 2011 compared with now, because of an above-inflation increase in the personal allowance from April that offsets the 2011 changes.

However, the Conservatives argue that anyone earning more than £20,000 will be worse off if you take the Nics changes on their own — and the respected Institute for Fiscal Studies agrees.

Mike Brewer at the IFS said: “Alistair Darling can claim some credit for increasing the personal allowance, but all it does is offset what would otherwise have been a rise in income tax.”

Most people will be better off from 2009 because the personal allowance — the amount on which you do not pay tax — will be raised by £130 above inflation to £6,475. This offsets the fact that many middle-income earners face a bigger Nics bill from April because the upper limit has been raised in line with the threshold for higher-rate tax — £37,400, or £43,875 after the personal allowance.

The increase in the personal allowance will make permanent changes introduced in May, when it was increased above inflation to compensate those who lost out when the 10p rate of tax was abolished.

It is in future years that the tax grab will hit hard. Here, we explain the key changes.

National Insurance contributions

At the moment, you pay Nics at 11% on earnings up to £40,040 and 1% above that. From 2011 the rate will go up by 0.5% to 11.5% and 1.5% respectively.

Accountants say the change, which will hit millions of workers and raise nearly £2.5 billion, is merely another form of income tax. Angela Beech of Blick Rothenberg said: “It is disingenuous of the government to claim only higher earners have faced a tax rise, because Nics are in effect a tax on your income.”

Personal allowances

From 2010, the personal allowance will be reduced for anyone earning more than £100,000, affecting 800,000 people, according to the IFS, and raising £1.8 billion.

Accountants have branded the measures “illogical”, as effective tax rates as high as 60% will apply to apparently random income bands.

Once your income exceeds £100,000, your personal allowance (£6,475) will be cut by £1 for every £2 above the income limit up to a maximum of half of the allowance (£3,237). So if your income was £105,000, you would lose £2,500 — giving you an allowance of £3,975. Once your income reaches £106,475 you have lost the maximum of half the personal allowance.

The clawback starts again when your income reaches £140,000. Your remaining allowance is reduced at the same rate until it is phased out completely. So if your income was £145,000 you would lose £2,500 of the remaining £3,237 — leaving an allowance of £737. Once your income gets to £146,475 you get nothing — in other words, all your income is taxed.

This gives rise to very high effective tax rates. Take the person earning £105,000. They are being taxed at 40% on the £2,500 of personal allowance they have lost — or £1,000. They have already been taxed at 40% on the £5,000 of income above £100,000 — or £2,000. That’s a total of £3,000, or 60%.

Nigel May of the accountants MacIntyre Hudson said: “This complex mechanism for the withdrawal of the personal allowance is nothing more than a clumsy way for the government to extract more from the better-off without further increasing the headline rate of income tax. They no doubt hoped nobody would spot that it creates marginal tax rates not seen for a generation.”

Income tax

From 2011, a new rate of income tax at 45% will apply to the 360,000 Britons who earn more than £150,000. With the 0.5% increase in National Insurance, the marginal rate on top earnings will be 46.5%.

An individual with annual earnings of £200,000 will suffer a double whammy. The loss of the personal allowance will cost them more than £2,400 a year, while the impact of the 45% income-tax rate will cost an additional £2,500 a year.

Pensioners

All pensioners will get a £60 bonus this Christmas, although the government is simply bringing forward the increase in the basic state pension from April — when it was due to go up from £90.75 to £95.25.

Pensioners are also big winners because they benefit from the higher personal allowance this year and do not pay Nics, so they are unlikely to be hit from 2011. Most will not have incomes above the £100,000 threshold at which they would pay higher income-tax rates.

For example, a pensioner couple with a joint income of £50,000 would be £400 better off this year, and neutral in 2011.

The richest pensioners may be caught out, though. The highest rate of tax on dividend income is going up to 37.5%, alongside the new 45% income rate.