Tax and welfare changes that come into effect today will cost British households £2.3bn this year, according to estimates by Capital Economics. Although lower-earning taxpayers will be better off in the 2011/12 tax year, today is being dubbed "Worse-off Wednesday" for higher earners who will see their incomes reduced by £500m at a time of rising inflation.
The average Briton will see an increase of £1,000 to the personal allowance, meaning they can earn £7,475 before paying income tax.
About 1.7m people earning below £21,000 a year will be £250 better off.
However, the benefits are offset for higher earners, because the threshold at which they start paying tax at 40% is reduced from £37,400 to £35,000 above the personal allowance.
National Insurance contributions are also going up by 1%, although there will be an increase the number of exempted low earners because of a rise in the threshold.
Capital Economics UK economist Vicky Redwood told Sky News: "I think it's pretty unambiguously bad for economic growth because these people (higher earners) spend a lot of their income.
"Therefore consumer demand is going to weaken and economic growth is going to weaken because consumer demand makes up two-thirds of the economy." Read More
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