Refusal to raise thresholds catches more people in NIC net

Gordon Brown slipped £800m out of taxpayers' pockets, simply by doing nothing. He declined to "unfreeze" personal income tax allowances, the amount we are allowed to earn untaxed, which by rights should at least rise by the rate of inflation. Instead, the main personal allowance for the new tax year is unchanged from last year, at £4,615.

A similar sleight of hand has caught everyone who pays national insurance contibutions (NICs) through the refusal to raise the threshold at which contributions start in line with the 7 per cent rise in the minimum wage.

When the Chancellor stood up yesterday he was already more than £6bn up. In addition to freezing personal allowan-ces, the increases in NICs will raise an estimated £8bn, and Mr Brown expects to give away £2.7bn through the working tax credit and child tax credit.

The NICs changes mean a cut of £10 a week in the average paypacket from this month. NICs by employers, employees and the self-employed on all earnings above the threshold of £89 per week are now levied at 11p in the £, not 10p. Those earning more than the former upper earnings limit of £29,900 a year pay 1p in the £ on the remainder of their earnings.

The child and working tax credits replace the children's and working families tax credits. The child tax credit also streamlines previous types of benefit for families with children. It is paid directly to the child's main carer, but also lumps together the earnings of the parents. The credit tapers rapidly after combined income exceeds £40,000, so this will hit many whose parents are individually on modest incomes.

David Willetts, the Tory work and pensions spokesman, said up to 200,000 families would lose. A couple each earning £30,000 a year with two children would be £529 a year worse off.

The working tax credit tries to improve the work incentives of second earners in couples with children.