High earners hit by Budget predictions

Higher earners could face increases in national insurance contributions (NIC) and a reduction of pensions tax relief in Alistair Darling’s first budget in 12 March.

Chartered accountants MacIntyre Hudson predicts 2-1 odds that the chancellor will raise the NIC above the upper earnings limit (£34,840) from 1% to 2%. The firm also predicts that Darling might introduce higher supplementary rates for top earners such as a 3% charge on earnings above £100,000.

In addition, MacIntyre Hudson predicts 4-1 odds that the government will reduce the maximum pension contribution eligible for tax relief from £225,000 to £100,000.

Patrick King, tax principal at MacIntyre Hudson, said: “Reducing the annual limit on pension contributions would raise tax from high earners currently using their maximum entitlements. The chancellor can argue that nobody making contributions at that level is likely to end up on state benefits in retirement and so a lower limit would protect the state’s interests while minimising opposition, at least from traditional Labour voters.”

Another prediction, with evens odds, is that the chancellor could reintroduce a car purchase tax with a new focus that would exempt greener cars and charge gas-guzzlers at a penal rate. This would be similar to the tax Normal Lamont †abolished to help the car industry in the last recession in November 1992.