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Top rate tax cut will save highest earners £100,000 a year, not £40,0

Britain's highest earners will benefit to the tune of more than £100,000-a-year from George Osborne's 5p cut to the top rate of tax, which will come down from 50p to 45p in April.

Labour critics had originally balked at the fact it would save some 8,000 of the richest people in the country £40,000 a year.

But leader Ed Miliband will claim in figures being published today that those earning more than £1million stand to benefit by an average of £107,500 as a result of the changes.

Labour leader Ed Miliband: Government decided to stand up for the 'wrong people'

The claim comes ahead of next week's autumn statement on the economy by the Chancellor.

Mr Miliband is expected to tell factory workers today that they were paying the price for the Government's decision to stand up for the 'wrong people'.

'David Cameron and George Osborne believe the only way to persuade millionaires to work harder is to give them more money.

'But they also seem to believe that the only way to make you work harder is to take money away,' he is expected to say.

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'Cut your tax credits, squeeze your living standards, get rid of some of the services on which you rely, and put up VAT. That's where the money is coming from for the millionaires' tax cut.'

Osborne defied critics in cutting the 50p rate, arguing it showed Britain's his commitment to business and an enterprise economy. Even at 45p, the top rate will remain above the 40p that persisted through all but the very last months of Labour's reign.

The 50p rate was introduced by Labour in 2010 for those earning more than £150,000 a year, but the Coalition claimed that it was bringing in hundreds of millions of pounds - rather than billions - for the Treasury. Until then the top rate had been at 40p since 1988.

In return for supporting the measure the Lib Dems wanted a large increase in the annual income tax personal allowance - the amount of income you can receive each year free from tax - and the other biggest Budget giveaway was a substantial boost to this.    

A higher level of £8,105 started as planned for the 2012-2013 tax year (last April), but was ramped up to £9,205 for 2013-2014.

The Government estimated about 23million people would enjoy a gain averaging £170 a year.

However, that benefit will be snatched back for many higher earners because the level at which 40 per cent tax kicks in will be lower. From April 2013 it will apply from a total income of £41,450 rather than £42,475. The combined effect is to leave existing higher-rate payers about £42 a year better off, but about one million more people will be dragged into the 40 per cent band.

Those earning above £100,000 continue to have their personal allowance restricted and will end up on average £185 worse off.

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