Just when you thought it was safe, your payslip's up for grabs

Just when you thought it was safe, your payslip's up for grabs

Avoiding budget price bounces in beer, tobacco and gas-guzzling four-wheel drives is easy - just buy something else. But whether you're a low earner or comfortably off, you can't sidestep the chancellor's smash'n'grab on many payslips from next month.

Income tax - and the associated national insurance which is a tax in all but name - barely received a mention in the budget. But that's because new rules from April were set a year ago.

For while the headline basic income tax rate falls from 22% to 20% when the new tax year starts on April 6, this is more than offset for low earners by the abolition of the 10% "starting" tax rate (although this remains for savings interest).

Anyone under 65 earning just over the £5,435 personal allowance level, will lose 20p in each extra pound they earn to tax - twice the current 10p rate.

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Income tax expert John Whiting at accountants PricewaterhouseCoopers says: "This hits hardest those earning £8,000 to £10,000 a year, but it affects those earning up to £18,000. And while tax credits can help lower earners, students working part time, or those who take early retirement, cannot claim. And others find it too difficult."

He calculates someone under 65 on £10,000 will lose about £2 a week from the abolition of the 10% rate band.

But most of the over-65s will gain. Their personal allowance - the slice of income you can earn before paying tax - goes up substantially, more than compensating for the loss of the 10% band. "A pensioner on £10,000 is about £1.50 a week better off," says Whiting.

The pensioner gains do not apply to the better-off in the age group. Once an income - including savings interest and pension payments - tops the £21,800 income limit for age-related allowances, the extra personal allowance starts to evaporate at the rate of £1 for each £2 over the limit.

Besides low earners, those on around £35,000 to £40,000 a year will also see take-home pay fall. Although this group gains from the basic rate cut, they lose from national insurance increases where the upper level for the 11% deductions goes up from £670 a week (£34,840 a year) to £770 a week (£40,040 a year).

The very highly paid - £50,000 and more - gain around £370 a year from the changes. But they will lose in 2009 when the upper national insurance level is set to rise to £830 a week.

t.levene@guardian.co.uk

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