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Cut in top rate of income tax to 45% comes into effect Danny Alexander says tax changes now in force will 'make work pay'
(34 minutes later)
A cut in the top rate of income tax from 50 pence in the pound to 45 pence has come into effect. Income tax changes that have come into effect will help make work pay, Chief Secretary to the Treasury Danny Alexander has said.
The reduction, which was announced by Chancellor George Osborne in his 2012 Budget, affects people with incomes of more than £150,000. The Lib Dem minister said an increase in the personal allowance to £9,440 would benefit "people working hard on ordinary incomes".
Other tax and benefit changes that start on 6 April include the freeze on the level of income which pensioners can earn before they have to pay tax. But Shadow Chancellor Ed Balls called the changes a "giveaway" for the rich.
Shadow Chancellor Ed Balls called the changes a "giveaway" for the rich. The top rate of income tax will drop from 50p in the pound to 45p for people with incomes of more than £150,000.
He said that as a result of the changes, working families would be up to £4,000 worse off, while millionaires got average tax cuts of £100,000. Mr Balls said that as a result of the changes, working families would be up to £4,000 worse off, while millionaires got average tax cuts of £100,000.
"Is it really right today at a time when pensioners are paying more, when people on low incomes are seeing the hit from the bedroom tax, when all families are worse off, for the priority for the government not to change course on the economy, but to give a tax giveaway on this scale to people on the highest earnings?" Mr Balls asked on Radio 4's Today programme."Is it really right today at a time when pensioners are paying more, when people on low incomes are seeing the hit from the bedroom tax, when all families are worse off, for the priority for the government not to change course on the economy, but to give a tax giveaway on this scale to people on the highest earnings?" Mr Balls asked on Radio 4's Today programme.
But Mr Alexander countered, saying the coalition government "is working hard to help those on low and middle incomes."
He added: "We think it's important that we make work pay, that we reward people who are working hard on ordinary incomes and that is what the increase in the personal allowance will do.
"The wealthy are paying more in every year of this government than they did during the entire period Labour was in office."
Pension risePension rise
The amount pensioners can earn without paying tax will no longer rise with inflation from today, giving rise to accusations of a "granny tax".. Also from 6 April, the amount pensioners can earn without paying tax will no longer rise with inflation, giving rise to accusations of a "granny tax".
The tax allowance level for people aged 65 and older has instead been frozen at £10,500.The tax allowance level for people aged 65 and older has instead been frozen at £10,500.
For almost everyone else the amount people can earn before paying income tax has risen to £9,440, leaving an extra £267 a year in the pockets of millions of basic rate taxpayers.For almost everyone else the amount people can earn before paying income tax has risen to £9,440, leaving an extra £267 a year in the pockets of millions of basic rate taxpayers.
However, the chancellor paid for this cut in part by bringing down the threshold for 40% tax to £41,450, adding 400,000 people to that tax band.However, the chancellor paid for this cut in part by bringing down the threshold for 40% tax to £41,450, adding 400,000 people to that tax band.
Meanwhile, most tax credits and working age benefits, including Jobseeker's Allowance, are being increased by 1% - below the rate of inflation.Meanwhile, most tax credits and working age benefits, including Jobseeker's Allowance, are being increased by 1% - below the rate of inflation.
Pensioners get a larger rise in the state pension, which goes up by 2.5% to £110 a week.Pensioners get a larger rise in the state pension, which goes up by 2.5% to £110 a week.
Child benefit has been frozen for a third year.Child benefit has been frozen for a third year.
The reduction in the top rate of income tax sparked a political row when it was first announced last year.The reduction in the top rate of income tax sparked a political row when it was first announced last year.
Labour said the coalition government was giving an unfair tax cut to the richest people in the country, while the Conservatives said the 50% level damaged UK growth and competitiveness, making Britain a less attractive place for overseas investment.Labour said the coalition government was giving an unfair tax cut to the richest people in the country, while the Conservatives said the 50% level damaged UK growth and competitiveness, making Britain a less attractive place for overseas investment.
Conservative Party chairman Grant Shapps MP said that all the changes coming into effect on Saturday were "really good for hard-working people".
He added: "Twenty-four million people will benefit and a further 2.2 million people will be taken out of that tax entirely under this measure today."
Labour says the freezing of the tax allowance for pensioners is an unfair attack on elderly people. The Conservatives counter that the allowance level remains higher than for people of working age, and that the government has increased the state pension by more than the former Labour government had planned.Labour says the freezing of the tax allowance for pensioners is an unfair attack on elderly people. The Conservatives counter that the allowance level remains higher than for people of working age, and that the government has increased the state pension by more than the former Labour government had planned.