SURGING tax bills in the first three months of the year hit Britons hard in the pocket, combining with other increases in the cost of living to leave disposable incomes barely growing, figures revealed yesterday.

In the latest evidence of the toll of people’s spending power from a steadily rising tax burden, the Government’s own national accounts showed that growth of incomes, after allowing for tax and inflation, slowed to 0.2 per cent in the first quarter of the year.

This was sharply down from 2005 levels, at just a third of the 0.6 per cent average rate of increase in disposable incomes over the whole of last year.

It also marked the weakest rise since the amount of earnings left out of take-home pay for everyday spending actually dropped, by 0.1 per cent, in the winter of 2004.

The figures will reinforce financial gloom among many households as they are forced to dig deeper to pay for soaring utility bills, council tax, petrol prices, and dearer mortgage costs after the Bank of England’s interest rate increase last August.

On top of these costs, yesterday’s official data showed that taxes paid on incomes leapt by a dramatic 4.8 per cent in the first quarter.

This meant that, after tax, incomes in that period grew by only 0.7 per cent, barely half the 1.3 per cent pace in the previous three months.

Inflation then took another big bite out of people’s rising earnings, leaving disposable income to meet living costs eking out the mere 0.2 per cent increase.

This news came a day after figures from Nationwide Building Society emphasised how rising house prices, and now higher interest rates, have combined to push up the cost of owning a home, with mortgage costs potentially swallowing up as much as two fifths of salaries for many people on average incomes.

Nationwide’s analysis coincided with Bank of England figures showing that the total burden of the nation’s mortgage debt topped £1 trillion (£1,000 billion) for the first time.

The impact of rising costs for items such as council tax and water, gas and electricity bills is increasingly eroding living standards, a study from Ernst & Young, the accounting group, claimed yesterday. E&Y’s figures suggested that, after meeting all these costs, the average household is now worse off than at any time for five years.

The accountancy firm estimated that Britons now have 10 per cent less money for discretionary spending than five years ago.

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