Government reforms will see three quarters of a million people paying income tax of 40%.

The threshold for the higher rate will be reduced from £37,400 to £35,001 this year, according to the Institute for Fiscal Studies (IFS).

But around half a million people will no longer have to pay income tax at all, following the £1,000 increase in the amount people can earn tax-free, raising the threshold to £7,475.

Other reforms include increasing National Insurance charges from 11% to 12% from the start of the new tax year, and taxing 2% instead of 1% on earnings above £42,484.

The IFS estimates that the richest 10% of people will lose 3% of their net income from April 6, compared with a 1% loss for the population as a whole.

And those claiming benefits will be hit by the Government's decision to increase benefits payments in line with inflation as measured by the Consumer Prices Index, rather than the Retail Prices Index, which tends to be higher.

James Browne, an economist at the IFS, said: ‘Further reductions in household income are inevitable as Government policies aimed at helping to reduce Government borrowing from its post-Second World War high are introduced.’

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